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Vertical Contracts between Airports and Airlines: is there a Trade-off between Welfare and Competitiveness?

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  • Cristina Barbot

    ()
    (CETE, Faculdade de Economia, Universidade do Porto)

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    Abstract

    Airports and airlines have been increasingly establishing vertical contracts, which have a wide variety of forms. These contracts have important implications for policy issues, namely for regulation and price discrimination legislation. In this paper we develop a model to analyse the effects of three types of vertical contracts, in what regards welfare, pro-competitiveness and the scope for regulation. We find that two types of contracts are anti-competitive, and that in all of them consumers are better-off, though in one of them within conditions regarding operational efficiency. We also conclude that regulation may (or may not) improve welfare depending on the type of contract and that price capping has different effects according to the facility the price of which is capped. Moreover, we find that these agreement’s effects exhibit a trade-off between pro-competitiveness and welfare and between price discrimination and welfare.

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    File URL: http://www.fep.up.pt/investigacao/cete/papers/DP0901.pdf
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    Bibliographic Info

    Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series CEF.UP Working Papers with number 0901.

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    Length: 26 pages
    Date of creation: Jan 2009
    Date of revision:
    Handle: RePEc:por:cetedp:0901

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    Keywords: vertical contracts; regulation; airports; airlines.;

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    1. Comanor, William S & Frech, H E, III, 1985. "The Competitive Effects of Vertical Agreements?," American Economic Review, American Economic Association, vol. 75(3), pages 539-46, June.
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    Cited by:
    1. Fu, Xiaowen & Homsombat, Winai & Oum, Tae H., 2011. "Airport–airline vertical relationships, their effects and regulatory policy implications," Journal of Air Transport Management, Elsevier, vol. 17(6), pages 347-353.
    2. Cruz, Carlos & Marques, Rui, 2010. "Contribution to the study of PPP arrangements in airport development, management and operation," MPRA Paper 24623, University Library of Munich, Germany.
    3. Zhang, Anming & Fu, Xiaowen & Yang, Hangjun (Gavin), 2010. "Revenue sharing with multiple airlines and airports," Transportation Research Part B: Methodological, Elsevier, vol. 44(8-9), pages 944-959, September.

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