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Airport pricing strategy by hub airports: does the number of local airports matter?

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  • Akio Kawasaki

    (Oita University)

Abstract

This study investigates airport pricing policy (uniform or discriminatory pricing) for international and domestic flights. We assume a game in which two countries exist, where each country has a complementary international hub airport and several local airports. In the symmetric setting, we find that uniform pricing (discriminatory pricing) is a unique Nash equilibrium for a small (large) number of local airports and that for an intermediate number of local airports, equilibria emerge when a hub airport adopts uniform pricing (discriminatory pricing) and the other hub airport adopts discriminatory pricing (uniform pricing). Additionally, we show that uniform pricing is socially preferable for both countries.

Suggested Citation

  • 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.
    • Handle: RePEc:spr:apjors:v:4:y:2020:i:3:d:10.1007_s41685-020-00168-2
    DOI: 10.1007/s41685-020-00168-2
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    More about this item

    Keywords

    Airport fee competition; Third-degree price discrimination; Uniform pricing; Airline network;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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