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Inverting the regulatory rules? Optimizing airport regulation to account for commercial revenues

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  • Evangelinos, Christos
  • Püschel, Ronny
  • Goldhahn, Susan
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    Abstract

    This paper analyzes the role of commercial revenues in today's airport regulatory system. We find that the current regulatory regime only partially achieves core aims such as welfare maximization. After highlighting instances in which airport price regulation is not economically justified, we explore the potential for airports to exercise market power in the commercial sector. In certain circumstances, we advocate the introduction of an 'inverted' dual till system under which commercial as opposed to aviation revenues are the focus of price regulation. The suitability of such a system varies from airport to airport, however, depending on various factors, such as the airport's competitive environment and the presence of capacity constraints. --

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    Bibliographic Info

    Paper provided by Dresden University of Technology, Faculty of Transportation and Traffic Sciences "Friedrich List", Institute for Transport and Economics in its series Discussion Papers with number 1/2011.

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    Date of creation: 2011
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    Handle: RePEc:zbw:tudiwv:12011

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    Keywords: Airport regulation; non-aviation revenues; price differentiation; single till; dual till;

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    1. Pels, Eric & Nijkamp, Peter & Rietveld, Piet, 2003. "Inefficiencies and scale economies of European airport operations," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 39(5), pages 341-361, September.
    2. Zhang, Anming & Zhang, Yimin, 2003. "Airport charges and capacity expansion: effects of concessions and privatization," Journal of Urban Economics, Elsevier, vol. 53(1), pages 54-75, January.
    3. Lu, Ching-Chyuan & Pagliari, Romano I., 2004. "Evaluating the potential impact of alternative airport pricing approaches on social welfare," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 40(1), pages 1-17, January.
    4. Starkie, David, 2002. "Airport regulation and competition," Journal of Air Transport Management, Elsevier, vol. 8(1), pages 63-72.
    5. Graeme Guthrie, 2006. "Regulating Infrastructure: The Impact on Risk and Investment," Journal of Economic Literature, American Economic Association, vol. 44(4), pages 925-972, December.
    6. Starkie, David, 2005. "Making airport regulation less imperfect," Journal of Air Transport Management, Elsevier, vol. 11(1), pages 3-8.
    7. Parker, David, 1997. "Price cap regulation, profitability and returns to investors in the UK regulated industries," Utilities Policy, Elsevier, vol. 6(4), pages 303-315, December.
    8. Braeutigam, Ronald R & Panzar, John C, 1993. "Effects of the Change from Rate-of-Return to Price-Cap Regulation," American Economic Review, American Economic Association, vol. 83(2), pages 191-98, May.
    9. Starkie, David, 1998. "Allocating airport slots: a role for the market?," Journal of Air Transport Management, Elsevier, vol. 4(2), pages 111-116.
    10. Morrison, William G., 2009. "Real estate, factory outlets and bricks: A note on non-aeronautical activities at commercial airports," Journal of Air Transport Management, Elsevier, vol. 15(3), pages 112-115.
    11. Forsyth, Peter, 2004. "Locational and monopoly rents at airports: creating them and shifting them," Journal of Air Transport Management, Elsevier, vol. 10(1), pages 51-60.
    12. Knockaert, Jasper & Evangelinos, Christos & Rietveld, Piet & Wieland, Bernhard, 2009. "Differentiated infrastructure charging: a comparison of theory and practise," European Transport \ Trasporti Europei, ISTIEE, Institute for the Study of Transport within the European Economic Integration, issue 43, pages 4-34.
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