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Airport privatization in congested hub–spoke networks

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  • Lin, Ming Hsin

Abstract

This paper investigates the airport privatization issue. One congested hub and two linked local airports serve symmetric hub carriers. Passengers valuate the congestion delay cost and benefit from greater frequencies. The government considers privatizing either the hub or local airports. We find that in each privatizing scenario, welfare-maximizing public airport(s) set a charge below their operating costs in order to fully coordinate the high charge of privatized airport(s). If this fiscal deficit is not allowed, each scenario causes distortion. Interestingly, the distortion—and hence welfare losses—in privatizing a hub are smaller (larger) than those in privatizing both local airports when both passengers’ valuations are small (large); this is exactly the case when privatized local airports are strategic substitutes (complements). We also surprisingly find that retaining the hub airport as public and privatizing one or both local airports achieves the same market outcomes. We further find that if all airports are privatized, welfare becomes worse than the other scenarios; the hub airport charges lower (higher) prices than local airports when both local airports are strategic substitutes (complements).

Suggested Citation

  • Lin, Ming Hsin, 2013. "Airport privatization in congested hub–spoke networks," Transportation Research Part B: Methodological, Elsevier, vol. 54(C), pages 51-67.
  • Handle: RePEc:eee:transb:v:54:y:2013:i:c:p:51-67
    DOI: 10.1016/j.trb.2013.03.011
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    Cited by:

    1. Lin, Ming Hsin & Zhang, Anming, 2016. "Hub congestion pricing: Discriminatory passenger charges," Economics of Transportation, Elsevier, vol. 5(C), pages 37-48.
    2. Lin, Ming Hsin, 2019. "Airport congestion and capacity when carriers are asymmetric," International Journal of Industrial Organization, Elsevier, vol. 62(C), pages 273-290.
    3. Lin, Ming Hsin & Zhang, Yimin, 2017. "Hub-airport congestion pricing and capacity investment," Transportation Research Part B: Methodological, Elsevier, vol. 101(C), pages 89-106.
    4. Akio Kawasaki, 2017. "Airport Privatization Competition Including Domestic Airline Markets," Review of Urban & Regional Development Studies, Wiley Blackwell, vol. 29(1), pages 2-17, March.
    5. Brueckner, Jan K. & Lin, Ming Hsin, 2016. "Convenient flight connections vs. airport congestion: Modeling the ‘rolling hub’," International Journal of Industrial Organization, Elsevier, vol. 48(C), pages 118-142.
    6. Zhang, Canrong & Xie, Fanrui & Huang, Kun & Wu, Tao & Liang, Zhe, 2017. "MIP models and a hybrid method for the capacitated air-cargo network planning and scheduling problems," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 103(C), pages 158-173.
    7. Akio Kawasaki, 2013. "Airport privatization competition including domestic airline networks," Working Papers e064, Tokyo Center for Economic Research.
    8. Matsushima, Noriaki & Takauchi, Kazuhiro, 2014. "Port privatization in an international oligopoly," Transportation Research Part B: Methodological, Elsevier, vol. 67(C), pages 382-397.
    9. Li, Shuai & Cai, Jiannan & Cai, Hubo, 2019. "Infrastructure privatization analysis: A public-private duopoly game," Transport Policy, Elsevier, vol. 83(C), pages 80-87.
    10. 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.
    11. Akio Kawasaki, 2020. "Airport pricing strategy by hub airports: does the number of local airports matter?," Asia-Pacific Journal of Regional Science, Springer, vol. 4(3), pages 835-857, October.
    12. Achim I. Czerny & Anmin Zhang, 2015. "Single-Till versus Dual-Till Regulation of Airports," Tinbergen Institute Discussion Papers 15-049/VIII, Tinbergen Institute.
    13. Lin, Ming Hsin & Mantin, Benny, 2015. "Airport privatization in international inter-hub and spoke networks," Economics of Transportation, Elsevier, vol. 4(4), pages 189-199.
    14. Lin, Ming Hsin, 2020. "Congestion pricing and capacity for internationally interlinked airports," Transportation Research Part B: Methodological, Elsevier, vol. 142(C), pages 126-142.
    15. Bettini, Humberto F.A.J. & Oliveira, Alessandro V.M., 2016. "Two-sided platforms in airport privatization," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 93(C), pages 262-278.

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