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Market structure, countervailing power and price discrimination: the case of airports

A number of interesting policy questions have arisen regarding airport landing fees. For example, what is the impact of joint ownership of airports? Does airline countervailing power stop airports raising fees? Should airports be prohibited, as an EU directive intends, from charging differential input prices to airlines? We set out a model of upstream airports and downstream airlines with varying countervailing power and pricing structures. Our major findings are: (a) an increase in upstream concentration or in the degree of differentiation between airports always increases the landing fee; (b) the effect of countervailing power, via an increase in downstream concentration, lowers landing fees, but typically does not pass through to consumers; (c) with Cournot competition, uniform landing fees are always higher than discriminatory fees.

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Paper provided by Imperial College, London, Imperial College Business School in its series Working Papers with number 6857.

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Date of creation: May 2011
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Handle: RePEc:imp:wpaper:6857
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  1. Alberto Iozzi & Tommaso Valletti, 2010. "Vertical bargaining and countervailing power," CEIS Research Paper 160, Tor Vergata University, CEIS, revised 28 May 2010.
  2. Barrett, Sean D, 2000. "Airport competition in the deregulated European aviation market," Journal of Air Transport Management, Elsevier, vol. 6(1), pages 13-27.
  3. Dobson, Paul W & Waterson, Michael, 1997. "Countervailing Power and Consumer Prices," Economic Journal, Royal Economic Society, vol. 107(441), pages 418-30, March.
  4. Clifford Winston, 2009. "Lessons from the U.S. Transport Deregulation Experience for Privatization," OECD/ITF Joint Transport Research Centre Discussion Papers 2009/20, OECD Publishing.
  5. De Borger, Bruno & Van Dender, Kurt, 2006. "Prices, capacities and service levels in a congestible Bertrand duopoly," Journal of Urban Economics, Elsevier, vol. 60(2), pages 264-283, September.
  6. Dobson, Paul W. & Waterson, Michael, 2007. "The competition effects of industry-wide vertical price fixing in bilateral oligopoly," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 935-962, October.
  7. Pels, Eric & Verhoef, Erik T., 2004. "The economics of airport congestion pricing," Journal of Urban Economics, Elsevier, vol. 55(2), pages 257-277, March.
  8. Starkie, David, 2002. "Airport regulation and competition," Journal of Air Transport Management, Elsevier, vol. 8(1), pages 63-72.
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