IDEAS home Printed from https://ideas.repec.org/a/sae/crnind/v21y2020i3p244-274.html
   My bibliography  Save this article

Yardstick Regulation in a Competitive Context? The Case of the Italian Airports

Author

Listed:
  • Nicolò Avogadro
  • Sebastian Birolini
  • Mattia Cattaneo
  • Paolo Malighetti
  • Chiara Morlotti
  • Renato Redondi

Abstract

Over the past years, airport regulation has been generating a lot of interest in Europe, and despite the passing of Airport Charges Directive in 2009, there is ongoing debate on the need for introducing tighter airport regulations. The aim of the paper is twofold. First, acknowledging that regulation is usually applied in markets where competition is weak or absent, we evaluate the ex-ante need for price regulation in the air transport industry. By focusing on the Italian airport industry, our analysis provides evidence of a high level of competitive pressure faced by airports (both inside and outside the industry), suggesting that tighter price regulation may not be the optimal solution. Second, assuming that stricter regulation of the airport industry is necessary, we empirically investigate the applicability of yardstick regulation to the Italian airport system, outlining critical challenges and issues that may arise when applying benchmarking techniques in setting the optimum level of efficiency at regulated airports. According to current literature, applicability of empirical benchmarking techniques requires some basic research requirements to be met, such as high-quality data, a homogeneous production function, and a sufficient number of comparable observations. We find that both heterogeneity and the relatively small number of comparable airports, along with the complexity of gathering proper data, may compromise the applicability of a regulation scheme based on yardstick principles at the national level.

Suggested Citation

  • Nicolò Avogadro & Sebastian Birolini & Mattia Cattaneo & Paolo Malighetti & Chiara Morlotti & Renato Redondi, 2020. "Yardstick Regulation in a Competitive Context? The Case of the Italian Airports," Competition and Regulation in Network Industries, , vol. 21(3), pages 244-274, September.
    • Handle: RePEc:sae:crnind:v:21:y:2020:i:3:p:244-274
    DOI: 10.1177/1783591720936977
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/1783591720936977
    Download Restriction: no
    File URL: https://libkey.io/10.1177/1783591720936977?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Dag Dalen & Andres Gómez-Lobo, 2003. "Yardsticks on the road: Regulatory contracts and cost efficiency in the Norwegian bus industry," Transportation, Springer, vol. 30(4), pages 371-386, November.
    2. Adler, Nicole & Golany, Boaz, 2001. "Evaluation of deregulated airline networks using data envelopment analysis combined with principal component analysis with an application to Western Europe," European Journal of Operational Research, Elsevier, vol. 132(2), pages 260-273, July.
    3. Paolo Malighetti & Gianmaria Martini & Stefano Paleari & Renato Redondi, 2007. "An Empirical Investigation on the Efficiency, Capacity and Ownership of Italian Airports," Working Papers 0703, Department of Management, Information and Production Engineering, University of Bergamo.
    4. Adler, Nicole & Berechman, Joseph, 2001. "Measuring airport quality from the airlines' viewpoint: an application of data envelopment analysis," Transport Policy, Elsevier, vol. 8(3), pages 171-181, July.
    5. Sawkins, John W., 1995. "Yardstick competition in the English and Welsh water industry Fiction or reality?," Utilities Policy, Elsevier, vol. 5(1), pages 27-36, January.
    6. Catherine Waddams Price, 2003. "Yardstick competition and comparative performance measures in practice," Chapters, in: Lester C. Hunt (ed.), Energy in a Competitive Market, chapter 2, Edward Elgar Publishing.
    7. Joel Sobel, 1999. "A Reexamination of Yardstick Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 8(1), pages 33-60, March.
    8. Baumol, William J, 1977. "On the Proper Cost Tests for Natural Monopoly in a Multiproduct Industry," American Economic Review, American Economic Association, vol. 67(5), pages 809-822, December.
    9. Ingo Vogelsang, 1997. "Telecommunications Competition: The Last Ten Miles," Books, American Enterprise Institute, number 917773, September.
    10. Cowan, Simon, 1997. "Competition in the Water Industry," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 13(1), pages 83-92, Spring.
    11. Marques, Rui Cunha & Brochado, Ana, 2008. "Airport regulation in Europe: Is there need for a European Observatory?," Transport Policy, Elsevier, vol. 15(3), pages 163-172, May.
    12. Helm, Dieter, 1994. "British Utility Regulation: Theory, Practice, and Reform," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 10(3), pages 17-39, Autumn.
    13. Malighetti, Paolo & Paleari, Stefano & Redondi, Renato, 2016. "Base abandonments by low-cost carriers," Journal of Air Transport Management, Elsevier, vol. 55(C), pages 234-244.
    14. Curi, Claudia & Gitto, Simone & Mancuso, Paolo, 2011. "New evidence on the efficiency of Italian airports: A bootstrapped DEA analysis," Socio-Economic Planning Sciences, Elsevier, vol. 45(2), pages 84-93, June.
    15. N Adler & B Golany, 2002. "Including principal component weights to improve discrimination in data envelopment analysis," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 53(9), pages 985-991, September.
    16. Andrei Shleifer, 1985. "A Theory of Yardstick Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 319-327, Autumn.
    17. repec:ces:ifodic:v:3:y:2005:i:4:p:14567569 is not listed on IDEAS
    18. Lester C. Hunt (ed.), 2003. "Energy in a Competitive Market," Books, Edward Elgar Publishing, number 2519.
    19. Littlechild, Stephen, 2018. "Regulation and the nature of competition," Journal of Air Transport Management, Elsevier, vol. 67(C), pages 211-223.
    20. Reinhold, Annika & Niemeier, Hans-Martin & Kamp, Vanessa & Müller, Jürgen, 2010. "An evaluation of yardstick regulation for European airports," Journal of Air Transport Management, Elsevier, vol. 16(2), pages 74-80.
    21. Kumbhakar, Subal C. & Hjalmarsson, Lennart, 1998. "Relative performance of public and private ownership under yardstick competition: electricity retail distribution," European Economic Review, Elsevier, vol. 42(1), pages 97-122, January.
    22. Marques, Rui Cunha, 2006. "A yardstick competition model for Portuguese water and sewerage services regulation," Utilities Policy, Elsevier, vol. 14(3), pages 175-184, September.
    23. Fumitoshi Mizutani & Hideo Kozumi & Noriaki Matsushima, 2009. "Does yardstick regulation really work? Empirical evidence from Japan’s rail industry," Journal of Regulatory Economics, Springer, vol. 36(3), pages 308-323, December.
    24. Fumitoshi Mizutani, 2005. "Regulation and Deregulation in the Japanese Rail Industry," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 3(4), pages 10-15, 01.
    25. Fumitoshi Mizutani, 2005. "Regulation and Deregulation in the Japanese Rail Industry," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 3(04), pages 10-15, January.
    26. Paolo Malighetti & Gianmaria Martini & Stefano Paleari & Renato Redondi, 2007. "An Empirical Investigation on the Efficiency, Capacity Ownership of Italian Airports," Rivista di Politica Economica, SIPI Spa, vol. 97(1), pages 157-188, January-F.
    27. Thelle, Martin H. & Sonne, Mie la Cour, 2018. "Airport competition in Europe," Journal of Air Transport Management, Elsevier, vol. 67(C), pages 232-240.
    28. Yatchew, Adonis, 2001. "Incentive Regulation of Distributing Utilities Using Yardstick Competition," The Electricity Journal, Elsevier, vol. 14(1), pages 56-60.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fumitoshi Mizutani & Hideo Kozumi & Noriaki Matsushima, 2009. "Does yardstick regulation really work? Empirical evidence from Japan’s rail industry," Journal of Regulatory Economics, Springer, vol. 36(3), pages 308-323, December.
    2. Jonas Teusch, 2019. "When Efficient Firms Flock Together: Merger Incentives Under Yardstick Competition," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 55(2), pages 237-255, September.
    3. J.A. den Hertog, 2010. "Review of economic theories of regulation," Working Papers 10-18, Utrecht School of Economics.
    4. Paraschi, Elen Paraskevi & Georgopoulos, Antonios & Papatheodorou, Andreas, 2020. "Abiotic determinants of airport performance: Insights from a global survey," Transport Policy, Elsevier, vol. 85(C), pages 33-53.
    5. Faure-Grimaud, Antoine & Reiche, Sönje Kerrin, 2003. "Dynamic Yardstick Regulation," CEPR Discussion Papers 4035, C.E.P.R. Discussion Papers.
    6. lo Storto, Corrado, 2018. "Ownership structure and the technical, cost, and revenue efficiency of Italian airports," Utilities Policy, Elsevier, vol. 50(C), pages 175-193.
    7. Faure-Grimaud, Antoine & Reiche, Sonje, 2003. "Dynamic yardstick regulation," LSE Research Online Documents on Economics 19319, London School of Economics and Political Science, LSE Library.
    8. Faure-Grimaud, A. & Reiche, S., 2006. "Dynamic yardstick mechanisms," Games and Economic Behavior, Elsevier, vol. 54(2), pages 316-335, February.
    9. Harada, Shumpei & 原田, 峻平 & Yamauchi, Hirotaka & 山内, 弘隆, 2014. "Yardstick Competition And Franchise Bidding: A Comparative Analysis Based On Asymmetric Information," Hitotsubashi Journal of commerce and management, Hitotsubashi University, vol. 48(1), pages 31-42, October.
    10. Dijkstra, Peter T. & Haan, Marco A. & Mulder, Machiel, 2017. "Design of yardstick competition and consumer prices: Experimental evidence," Energy Economics, Elsevier, vol. 66(C), pages 261-271.
    11. D’Alfonso, Tiziana & Daraio, Cinzia & Nastasi, Alberto, 2015. "Competition and efficiency in the Italian airport system: new insights from a conditional nonparametric frontier analysis," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 80(C), pages 20-38.
    12. Antoine Faure-Grimaud & Soenje Reiche, 2003. "Dynamic Yardstick Regulation," STICERD - Theoretical Economics Paper Series 459, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    13. Voltes-Dorta, Augusto & Pagliari, Romano, 2012. "The impact of recession on airports' cost efficiency," Transport Policy, Elsevier, vol. 24(C), pages 211-222.
    14. Francisco Gildemir Ferreira Silva, 2022. "Brazilian railways separability infrastructure/operations: investigation by production indicators," SN Business & Economics, Springer, vol. 2(7), pages 1-25, July.
    15. De Nicola, Arianna & Gitto, Simone & Mancuso, Paolo, 2013. "Airport quality and productivity changes: A Malmquist index decomposition assessment," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 58(C), pages 67-75.
    16. Tangeras, Thomas P., 2002. "Collusion-proof yardstick competition," Journal of Public Economics, Elsevier, vol. 83(2), pages 231-254, February.
    17. Eshien Chong & Freddy Huet, 2009. "Yardstick Competition, Franchise Bidding and Firms’ Incentives to Collude," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 35(1), pages 149-169, September.
    18. Martini, Gianmaria & Scotti, Davide & Viola, Domenico & Vittadini, Giorgio, 2020. "Persistent and temporary inefficiency in airport cost function: An application to Italy," Transportation Research Part A: Policy and Practice, Elsevier, vol. 132(C), pages 999-1019.
    19. Fabio Carlucci & Andrea Cirà & Paolo Coccorese, 2018. "Measuring and Explaining Airport Efficiency and Sustainability: Evidence from Italy," Sustainability, MDPI, vol. 10(2), pages 1-17, February.
    20. repec:dgr:rugsom:14010-eef is not listed on IDEAS
    21. Ayako Suzuki, 2012. "Yardstick Competition to Elicit Private Information: An Empirical Analysis," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 40(4), pages 313-338, June.

    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:sae:crnind:v:21:y:2020:i:3:p:244-274. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.