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An Analysis of Airport Pricing and Regulation in the Presence of Competition Between Full Service Airlines and Low Cost Carriers

  • Xiaowen Fu
  • Mark Lijesen
  • Tae H. Oum

Despite the increasing trend of airport privatisation and deregulation in recent years, few studies have analysed how the pricing behaviour of unregulated airports affects downstream airline competition, especially the competition between airlines offering differentiated services such as the case of full service airlines (FSA) vis-à-vis low cost carriers (LCC). In this paper, a duopoly model is used to analyse and capture the differential competitive effects of changing airport user charges on FSAs and LCCs. Numerical simulations and sensitivity tests are performed in order to measure such differential effects. The analytical and numerical results found the existence of asymmetric effects of an airport's monopoly pricing on LCC and FSA. It is important for governments to take account of asymmetric effects when considering the form and extent of regulation or deregulation. © 2006 LSE and the University of Bath

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Article provided by London School of Economics and University of Bath in its journal Journal of Transport Economics and Policy.

Volume (Year): 40 (2006)
Issue (Month): 3 (September)
Pages: 425-447

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Handle: RePEc:tpe:jtecpo:v:40:y:2006:i:3:p:425-447
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  1. Jean-Jacques Laffont & Patrick Rey & Jean Tirole, 1998. "Network Competition: I. Overview and Nondiscriminatory Pricing," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 1-37, Spring.
  2. Avinash Dixit, 1979. "A Model of Duopoly Suggesting a Theory of Entry Barriers," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 20-32, Spring.
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  5. Barrett, Sean D, 2000. "Airport competition in the deregulated European aviation market," Journal of Air Transport Management, Elsevier, vol. 6(1), pages 13-27.
  6. Haugh, David & Hazledine, Tim, 1999. "Oligopoly Behaviour in the Trans-Tasman Air Travel Market: TheCase of Kiwi International," Working Papers 195, Department of Economics, The University of Auckland.
  7. Francis, Graham & Fidato, Alessandro & Humphreys, Ian, 2003. "Airport–airline interaction: the impact of low-cost carriers on two European airports," Journal of Air Transport Management, Elsevier, vol. 9(4), pages 267-273.
  8. David Starkie, 2001. "Reforming UK Airport Regulation," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 35(1), pages 119-135, January.
  9. 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, London School of Economics and University of Bath, vol. 38(2), pages 217-246, May.
  10. Hooper, Paul, 2002. "Privatization of airports in Asia," Journal of Air Transport Management, Elsevier, vol. 8(5), pages 289-300.
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