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Airport capacity and congestion pricing with both aeronautical and commercial operations

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  • Zhang, Anming
  • Zhang, Yimin

Abstract

In this paper, we study airport decisions on pricing and capacity investment with both aeronautical and concession operations. In addition, the airport under consideration is serving air carriers who have market power. We find that a profit-maximizing airport would over-invest in capacity in the sense that the marginal (social) benefit of capacity is smaller than the marginal (social) cost. This tendency of overinvestment still holds when the private airport is under the regulatory constraint of cost recovery in its aeronautical operation (the dual-till regulation). We also find that the capacity investment by a public airport will be socially efficient in the sense that the marginal benefit of capacity is equal to the marginal cost of capacity. However, somewhat surprisingly, the capacity investment of the public airport will be inefficient if it is under regulatory constraints. Specifically, the airport will also over-invest in capacity, whether it is under a single-till regulation or a dual-till regulation. Finally, it is noteworthy that the inefficiency in airport investment is driven by the interaction between the airport and the carriers who have market power.

Suggested Citation

  • Zhang, Anming & Zhang, Yimin, 2010. "Airport capacity and congestion pricing with both aeronautical and commercial operations," Transportation Research Part B: Methodological, Elsevier, vol. 44(3), pages 404-413, March.
  • Handle: RePEc:eee:transb:v:44:y:2010:i:3:p:404-413
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    References listed on IDEAS

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    Cited by:

    1. Sheng, Dian & Li, Zhi-Chun & Xiao, Yi-bin & Fu, Xiaowen, 2015. "Slot auction in an airport network with demand uncertainty," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 82(C), pages 79-100.
    2. Flores-Fillol, Ricardo & Iozzi, Alberto & Valletti, Tommaso, 2014. "Platform pricing and consumer foresight: The case of airports," Working Papers 2072/242278, Universitat Rovira i Virgili, Department of Economics.
    3. repec:eee:trapol:v:61:y:2018:i:c:p:123-131 is not listed on IDEAS
    4. Lin, Ming Hsin, 2013. "Airport privatization in congested hub–spoke networks," Transportation Research Part B: Methodological, Elsevier, vol. 54(C), pages 51-67.
    5. Adler, Nicole & Liebert, Vanessa, 2014. "Joint impact of competition, ownership form and economic regulation on airport performance and pricing," Transportation Research Part A: Policy and Practice, Elsevier, vol. 64(C), pages 92-109.
    6. Noruzoliaee, Mohamadhossein & Zou, Bo & Zhang, Anming, 2015. "Airport partial and full privatization in a multi-airport region: Focus on pricing and capacity," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 77(C), pages 45-60.
    7. Hangjun Yang & Anming Zhang, 2011. "Price-cap regulation of congested airports," Journal of Regulatory Economics, Springer, vol. 39(3), pages 293-312, June.
    8. Achim I. Czerny, 2009. "Airport Pricing and Concession Revenues," WHU Working Paper Series - Economics Group 09-05, WHU - Otto Beisheim School of Management.
    9. Achim I. Czerny & Anmin Zhang, 2015. "Single-Till versus Dual-Till Regulation of Airports," Tinbergen Institute Discussion Papers 15-049/VIII, Tinbergen Institute.
    10. Bracaglia, Valentina & D׳Alfonso, Tiziana & Nastasi, Alberto, 2014. "Competition between multiproduct airports," Economics of Transportation, Elsevier, vol. 3(4), pages 270-281.
    11. Valentina Bracaglia & Tiziana D'Alfonso & Alberto Nastasi, 2014. "Multiproduct airport competition and e-commerce strategies," DIAG Technical Reports 2014-04, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".
    12. repec:eee:transb:v:100:y:2017:i:c:p:93-114 is not listed on IDEAS
    13. Adler, Nicole & Liebert, Vanessa & Yazhemsky, Ekaterina, 2013. "Benchmarking airports from a managerial perspective," Omega, Elsevier, vol. 41(2), pages 442-458.
    14. Xiao, Yibin & Fu, Xiaowen & Zhang, Anming, 2016. "Airport capacity choice under airport-airline vertical arrangements," Transportation Research Part A: Policy and Practice, Elsevier, vol. 92(C), pages 298-309.
    15. Zhang, Baocheng & Wu, Hao & Yang, Xinsheng & Zhai, Wenpeng & Xia, Qingjun & Li, Yafei, 2014. "An estimation of returns to scale of airport airsides under multiple optimal solutions in DEA," Journal of Air Transport Management, Elsevier, vol. 40(C), pages 149-156.
    16. Tomáš Buus, 2011. "Sharing Cost of Shared Services Centre," European Financial and Accounting Journal, University of Economics, Prague, vol. 2011(4), pages 49-59.
    17. Achim I. Czerny, 2012. "Public Versus Private Airport Behavior When Concession Revenues Exist," WHU Working Paper Series - Economics Group 12-01, WHU - Otto Beisheim School of Management.
    18. Czerny, Achim I., 2013. "Public versus private airport behavior when concession revenues exist," Economics of Transportation, Elsevier, vol. 2(1), pages 38-46.
    19. Mantin, Benny, 2012. "Airport complementarity: Private vs. government ownership and welfare gravitation," Transportation Research Part B: Methodological, Elsevier, vol. 46(3), pages 381-388.
    20. Xiao, Yibin & Fu, Xiaowen & Zhang, Anming, 2013. "Demand uncertainty and airport capacity choice," Transportation Research Part B: Methodological, Elsevier, vol. 57(C), pages 91-104.
    21. Yang, Hangjun & Fu, Xiaowen, 2015. "A comparison of price-cap and light-handed airport regulation with demand uncertainty," Transportation Research Part B: Methodological, Elsevier, vol. 73(C), pages 122-132.
    22. Kidokoro, Yukihiro & Lin, Ming Hsin & Zhang, Anming, 2016. "A general-equilibrium analysis of airport pricing, capacity, and regulation," Journal of Urban Economics, Elsevier, vol. 96(C), pages 142-155.
    23. Zou, Bo & Kafle, Nabin & Chang, Young-Tae & Park, Kevin, 2015. "US airport financial reform and its implications for airport efficiency: An exploratory investigation," Journal of Air Transport Management, Elsevier, vol. 47(C), pages 66-78.
    24. repec:aeg:report:2014-4 is not listed on IDEAS

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