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Limited Access to Airport Facilities and Market Power in the Airline Industry

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  • Federico Ciliberto
  • Jonathan W. Williams

Abstract

We investigate the role of limited access to airport facilities as a determinant of the hub premium in the U.S. airline industry. We use original data from competition plans that airports are required to submit to the U.S. Department of Transportation in compliance with the Aviation Investment and Reform Act for the Twenty-First Century. We collect information on the availability and control of airport gates, leasing arrangements, and other restrictions limiting the expansion of airport facilities. We find that the hub premium is increasing in the ticket fare. We find that control of gates is a crucial determinant of this premium. Limits on the fees that airlines can charge for subleasing their gates lower the prices charged by airlines. Finally, control of gates and restrictions on sublease fees explain high fares only when there is a scarcity of gates relative to the number of departures from an airport.

Suggested Citation

  • Federico Ciliberto & Jonathan W. Williams, 2010. "Limited Access to Airport Facilities and Market Power in the Airline Industry," Journal of Law and Economics, University of Chicago Press, vol. 53(3), pages 467-495.
  • Handle: RePEc:ucp:jlawec:doi:10.1086/605725
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Ciliberto, Federico & Schenone, Carola, 2012. "Bankruptcy and product-market competition: Evidence from the airline industry," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 564-577.
    3. Haskel, Jonathan & Iozzi, Alberto & Valletti, Tommaso, 2013. "Market structure, countervailing power and price discrimination: The case of airports," Journal of Urban Economics, Elsevier, vol. 74(C), pages 12-26.
    4. Clifford Winston, 2013. "On the Performance of the U.S. Transportation System: Caution Ahead," Journal of Economic Literature, American Economic Association, vol. 51(3), pages 773-824, September.
    5. Bilotkach, Volodymyr & Lakew, Paulos Ashebir, 2014. "On sources of market power in the airline industry: Panel data evidence from the US airports," Transportation Research Part A: Policy and Practice, Elsevier, vol. 59(C), pages 288-305.
    6. Desgranges, Gabriel & Gauthier, Stéphane, 2016. "Rationalizability and efficiency in an asymmetric Cournot oligopoly," International Journal of Industrial Organization, Elsevier, vol. 44(C), pages 163-176.
    7. repec:eee:trapol:v:63:y:2018:i:c:p:165-175 is not listed on IDEAS
    8. Bilotkach, Volodymyr & Mueller, Juergen & Németh, Adél, 2014. "Estimating the consumer welfare effects of de-hubbing: The case of Malév Hungarian Airlines," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 66(C), pages 51-65.
    9. Federico Ciliberto & Jonathan W. Williams, 2014. "Does multimarket contact facilitate tacit collusion? Inference on conduct parameters in the airline industry," RAND Journal of Economics, RAND Corporation, vol. 45(4), pages 764-791, December.
    10. Agostini, Claudio A. & Inostroza, Diego & Willington, Manuel, 2015. "Price effects of airlines frequent flyer programs: The case of the dominant firm in Chile," Transportation Research Part A: Policy and Practice, Elsevier, vol. 78(C), pages 283-297.
    11. Hüschelrath, Kai & Müller, Kathrin & Bilotkach, Volodymyr, 2011. "The construction of a low cost airline network," ZEW Discussion Papers 11-052, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    12. Sebastian Linde & Ralph Siebert, 2016. "Do Mergers Among Multimarket Firms Create Value?," CESifo Working Paper Series 6139, CESifo Group Munich.
    13. Zhang, Shengrun & Derudder, Ben & Witlox, Frank, 2013. "The impact of hub hierarchy and market competition on airfare pricing in US hub-to-hub markets," Journal of Air Transport Management, Elsevier, vol. 32(C), pages 65-70.
    14. Israel Mark & Keating Bryan & Rubinfeld Daniel L. & Willig Bobby, 2013. "Airline Network Effects and Consumer Welfare," Review of Network Economics, De Gruyter, vol. 12(3), pages 287-322, November.
    15. G. de Jong & C.L. Behrens & H. van Herk & E.T. Verhoef, 2017. "Domestic Market Power in the International Airline Industry," Tinbergen Institute Discussion Papers 17-009/VIII, Tinbergen Institute, revised 20 Mar 2018.
    16. repec:bla:ecinqu:v:55:y:2017:i:1:p:319-338 is not listed on IDEAS
    17. repec:hal:journl:halshs-00975002 is not listed on IDEAS
    18. repec:eee:jaitra:v:64:y:2017:i:pa:p:55-59 is not listed on IDEAS
    19. James Reitzes & Brendan McVeigh & Nicholas Powers & Samuel Moy, 2015. "Competitive Effects of Exchanges or Sales of Airport Landing Slots," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 46(2), pages 95-125, March.
    20. Amalia R. Miller, 2010. "Did the Airline Tariff Publishing Case Reduce Collusion?," Journal of Law and Economics, University of Chicago Press, vol. 53(3), pages 569-586.
    21. Ciliberto, Federico & Williams, Jonathan, 2010. "Does Multimarket Contact Facilitate Tacit Collusion? Inference on Conjectural Parameters in the Airline Industry," MPRA Paper 24888, University Library of Munich, Germany.
    22. Anming Zhang & Yimin Zhang & Joseph A. Clougherty, 2011. "Competition and Regulation in Air Transport," Chapters,in: A Handbook of Transport Economics, chapter 35 Edward Elgar Publishing.
    23. Ciliberto, Federico & Cook, Emily & Williams, Jonathan, 2017. "Network Structure and Consolidation in the U.S. Airline Industry, 1990-2015," MPRA Paper 83885, University Library of Munich, Germany.
    24. Federico Ciliberto & Zhou Zhang, 2017. "Multiple Equilibria And Deterrence In Airline Markets," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 319-338, January.

    More about this item

    JEL classification:

    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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