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Effects on Welfare of Different Airport Charge Systems

Author

Listed:
  • Cristina Barbot

    (CETE, Faculdade de Economia, Universidade do Porto)

Abstract

According to theoretical predictions, the application of peak-load pricing to utilities is expected to result in higher levels of welfare and is recommended on that basis. This price system is adopted by some airports in the EU, in order to alleviate congestion by means of shifting demand, while others charge according to the aircrafts’ weight. This paper provides an insight on the effects of both pricing systems on welfare. Within the framework of a vertical differentiation model, and using a twostage game with two airlines and one airport, peak-load pricing is shown to actually decrease consumer surplus and welfare, although it is the system preferred by the airport and by the low quality firm. These results are opposite to previous ones, and some particular features of the model, and of the airports’ specific case, account for this difference.

Suggested Citation

  • Cristina Barbot, 2003. "Effects on Welfare of Different Airport Charge Systems," CEF.UP Working Papers 0305, Universidade do Porto, Faculdade de Economia do Porto.
    • Handle: RePEc:por:cetedp:0305
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    More about this item

    Keywords

    airports; peak-load pricing; welfare.;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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