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Demand uncertainty and airport capacity choice

  • Xiao, Yibin
  • Fu, Xiaowen
  • Zhang, Anming
Registered author(s):

    This study analyzes the effects of demand uncertainty on airport capacity choices. It shows that demand uncertainty will not change optimal capacity choice if demand variation is low and capacity cost is high; otherwise the optimal airport capacity under demand uncertainty will be larger than the case when a deterministic mean demand is considered. These conclusions are robust with respect to the different market structures considered in this study and hold for both profit-maximizing and welfare-maximizing airports. The moderating effects of commercial revenue, capital cost, and airport operation cost on airport capacity choice are qualitatively the same in the cases of uncertain demand and deterministic demand.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0191261513001501
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    Article provided by Elsevier in its journal Transportation Research Part B: Methodological.

    Volume (Year): 57 (2013)
    Issue (Month): C ()
    Pages: 91-104

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    Handle: RePEc:eee:transb:v:57:y:2013:i:c:p:91-104
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    2. Czerny, Achim I., 2010. "Airport congestion management under uncertainty," Transportation Research Part B: Methodological, Elsevier, vol. 44(3), pages 371-380, March.
    3. Hangjun Yang & Anming Zhang, 2011. "Price-cap regulation of congested airports," Journal of Regulatory Economics, Springer, vol. 39(3), pages 293-312, June.
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    9. Kraus, Marvin, 1982. "Highway pricing and capacity choice under uncertain demand," Journal of Urban Economics, Elsevier, vol. 12(1), pages 122-128, July.
    10. Eric Pels & Erik Verhoef, 2003. "The Economics of Airport Congestion Pricing," Tinbergen Institute Discussion Papers 03-083/3, Tinbergen Institute.
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    12. Basso, Leonardo J. & Zhang, Anming, 2008. "On the relationship between airport pricing models," Transportation Research Part B: Methodological, Elsevier, vol. 42(9), pages 725-735, November.
    13. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
    14. Powell, Warren & Winston, Clifford, 1983. "A numerical investigation of the impact of uncertain demand and varying risk preferences on the pricing and capacity decisions of transportation firms: The case of airlines," Transportation Research Part B: Methodological, Elsevier, vol. 17(6), pages 471-490, December.
    15. Basso, Leonardo J. & Zhang, Anming, 2007. "Congestible facility rivalry in vertical structures," Journal of Urban Economics, Elsevier, vol. 61(2), pages 218-237, March.
    16. 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.
    17. 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.
    18. Nishimura, Kiyohiko G. & Ozaki, Hiroyuki, 2007. "Irreversible investment and Knightian uncertainty," Journal of Economic Theory, Elsevier, vol. 136(1), pages 668-694, September.
    19. 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.
    20. Desart, Bruno & Gillingwater, David & Janic, Milan, 2010. "Capacity dynamics and the formulation of the airport capacity/stability paradox: A European perspective," Journal of Air Transport Management, Elsevier, vol. 16(2), pages 81-85.
    21. Oum, Tae Hoon & Zhang, Yimin, 1990. "Airport pricing : Congestion tolls, lumpy investment, and cost recovery," Journal of Public Economics, Elsevier, vol. 43(3), pages 353-374, December.
    22. Frank Berardino, 2009. "New US Airport Slot Policy in Flux," Journal of Transport Economics and Policy, University of Bath, vol. 43(2), pages 279-290, May.
    23. Achim Czerny, 2006. "Price-cap Regulation of Airports: Single-till Versus Dual-till," Journal of Regulatory Economics, Springer, vol. 30(1), pages 85-97, 07.
    24. Zhang, Yimin, 2010. "Network structure and capacity requirement: The case of China," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 46(2), pages 189-197, March.
    25. Forsyth, Peter, 2007. "The impacts of emerging aviation trends on airport infrastructure," Journal of Air Transport Management, Elsevier, vol. 13(1), pages 45-52.
    26. Xiaowen Fu & Anming Zhang, 2010. "Effects of Airport Concession Revenue Sharing on Airline Competition and Social Welfare," Journal of Transport Economics and Policy, University of Bath, vol. 44(2), pages 119-138, May.
    27. Zhang, Anming & Czerny, Achim I., 2012. "Airports and airlines economics and policy: An interpretive review of recent research," Economics of Transportation, Elsevier, vol. 1(1), pages 15-34.
    28. d'Ouville, Edmond L. & McDonald, John F., 1990. "Effects of demand uncertainty on optimal capacity and congestion tolls for urban highways," Journal of Urban Economics, Elsevier, vol. 28(1), pages 63-70, July.
    29. 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.
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