IDEAS home Printed from https://ideas.repec.org/a/eee/indorg/v26y2008i4p1015-1031.html
   My bibliography  Save this article

Airport deregulation: Effects on pricing and capacity

Author

Listed:
  • Basso, Leonardo J.

Abstract

We use a model of vertical relations between two congestible airports and an airline oligopoly to examine, both analytically and numerically, how deregulation may affect airports prices and capacities. We find that: (i) unregulated profit-maximizing airports would overcharge for the congestion externality and, compared to the first-best, would induce large allocative inefficiencies and dead-weight losses. They would restrict capacity investments but, overall, would induce fewer delays; (ii) Welfare maximization subject to cost recovery performs quite well, achieving congestion levels similar to a private-unregulated airport but without inducing such large traffic contraction; this puts a question mark on the desirability of deregulation of private airports; (iii) Increased cooperation between airlines and airports provides some improvements, but the resulting airport pricing strategy leads to a downstream airline cartel; (iv) When schedule delay costs effects are strong and airline differentiation is weak, it may be optimal to have a single airline dominating the airports, but this happens only when airports' pricing schemes render the number of airlines irrelevant for competition.

Suggested Citation

  • Basso, Leonardo J., 2008. "Airport deregulation: Effects on pricing and capacity," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 1015-1031, July.
  • Handle: RePEc:eee:indorg:v:26:y:2008:i:4:p:1015-1031
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0167-7187(07)00119-1
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. David Starkie, 2001. "Reforming UK Airport Regulation," Journal of Transport Economics and Policy, University of Bath, vol. 35(1), pages 119-135, January.
    2. Pels, Eric & Verhoef, Erik T., 2004. "The economics of airport congestion pricing," Journal of Urban Economics, Elsevier, vol. 55(2), pages 257-277, March.
    3. Brueckner, Jan K., 2005. "Internalization of airport congestion: A network analysis," International Journal of Industrial Organization, Elsevier, vol. 23(7-8), pages 599-614, September.
    4. Brueckner, Jan K. & Van Dender, Kurt, 2008. "Atomistic congestion tolls at concentrated airports? Seeking a unified view in the internalization debate," Journal of Urban Economics, Elsevier, vol. 64(2), pages 288-295, September.
    5. Chen, Zhiqi & Ross, Thomas W., 2003. "Cooperating upstream while competing downstream: a theory of input joint ventures," International Journal of Industrial Organization, Elsevier, vol. 21(3), pages 381-397, March.
    6. Forsyth, Peter, 2003. "Regulation under stress: developments in Australian airport policy," Journal of Air Transport Management, Elsevier, vol. 9(1), pages 25-35.
    7. 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.
    8. Severin Borenstein, 1992. "The Evolution of U.S. Airline Competition," Journal of Economic Perspectives, American Economic Association, vol. 6(2), pages 45-73, Spring.
    9. Zhang, Anming & Zhang, Yimin, 1997. "Concession revenue and optimal airport pricing," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 33(4), pages 287-296, December.
    10. Swan, William M, 2002. "Airline route developments: a review of history," Journal of Air Transport Management, Elsevier, vol. 8(5), pages 349-353.
    11. Forsyth, Peter, 1997. "Price regulation of airports: principles with Australian applications," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 33(4), pages 297-309, December.
    12. Jan K. Brueckner, 2002. "Airport Congestion When Carriers Have Market Power," American Economic Review, American Economic Association, vol. 92(5), pages 1357-1375, December.
    13. Tae Hoon Oum & Anming Zhang & Yimin Zhang, 2004. "Alternative Forms of Economic Regulation and their Efficiency Implications for Airports," Journal of Transport Economics and Policy, University of Bath, vol. 38(2), pages 217-246, May.
    14. Morrison, Steven A., 1987. "The equity and efficiency of runway pricing," Journal of Public Economics, Elsevier, vol. 34(1), pages 45-60, October.
    15. Carlin, Alan & Park, Rolla Edward, 1970. "Marginal Cost Pricing of Airport Runway Capacity," American Economic Review, American Economic Association, vol. 60(3), pages 310-319, June.
    16. James A. Brander & Anming Zhang, 1990. "Market Conduct in the Airline Industry: An Empirical Investigation," RAND Journal of Economics, The RAND Corporation, vol. 21(4), pages 567-583, Winter.
    17. Shapiro, Carl & Willig, Robert D, 1990. "On the Antitrust Treatment of Production Joint Ventures," Journal of Economic Perspectives, American Economic Association, vol. 4(3), pages 113-130, Summer.
    18. Zhang, Anming & Zhang, Yimin, 2006. "Airport capacity and congestion when carriers have market power," Journal of Urban Economics, Elsevier, vol. 60(2), pages 229-247, September.
    19. Tae Hoon Oum & Anming Zhang & Yimin Zhang, 1995. "Airline Network Rivalry," Canadian Journal of Economics, Canadian Economics Association, vol. 28(4a), pages 836-857, November.
    20. Starkie, David, 2005. "Making airport regulation less imperfect," Journal of Air Transport Management, Elsevier, vol. 11(1), pages 3-8.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:indorg:v:26:y:2008:i:4:p:1015-1031. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/inca/505551 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.