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Market power of hub airports: The role of lock-in effects and downstream competition

Author

Listed:
  • Florian Allroggen

    () (Institute of Transport Economics, Muenster)

  • Robert Malina

    () (Institute of Transport Economics, Muenster)

Abstract

In this paper we develop a model of hub competition, which includes duopolistic Bertrand competition on the downstream market in order to analyze the incentives of hub airports to exploit market power in the transfer passenger market. We find evidence that downstream competition limits hub market power and moreover, that there are incentives for a hub airport and its respective network carrier to optimize profits of the overall network jointly. Therefore, strict economic regulation of the business relationship between hub airports and their respective network carrier is rendered unnecessary. Regulators should focus on supporting long-term profit sharing contracts of network carriers and hub airports or other contractual forms to ensure vertical cooperation.

Suggested Citation

  • Florian Allroggen & Robert Malina, 2010. "Market power of hub airports: The role of lock-in effects and downstream competition," Working Papers 15, Institute of Transport Economics, University of Muenster.
  • Handle: RePEc:mut:wpaper:15
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    File URL: https://www.wiwi.uni-muenster.de/ivm/sites/ivm/files/documents/forschung/diskussionspapiere/diskussionspapier15.pdf
    File Function: First version, 2010
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    Citations

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    Cited by:

    1. Bush, Harry & Starkie, David, 2014. "Competitive drivers towards improved airport/airline relationships," Journal of Air Transport Management, Elsevier, vol. 41(C), pages 45-49.

    More about this item

    Keywords

    Airports; Regulation; Hub Competition; industrial organization;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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