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The impact of airport competition on technical efficiency: A Stochastic Frontier Analysis applied to Italian airports

  • Malighetti, Paolo
  • Martini, Gianmaria
  • Scotti, Davide
  • Volta, Nicola

We investigate how the intensity of competition among airports affects their technical efficiency by computing airports’ markets on the basis of a potential demand approach. We find that the intensity of competition has a negative impact on airports’ efficiency in Italy during the 2005–2008 period. This implies that airports belonging to a local air transportation system where competition is strong exploit their inputs less intensively than do airports with local monopoly power. Furthermore, we find that public airports are more efficient than private and mixed ones. Since public airports take into account the positive externalities created by air transportation in the local economy, they are more willing to subsidize airlines in developing the airports’ connections. Hence, policy makers should provide incentives to implement airports’ specialization in local systems where competition is strong. Moreover, when regulating airport charges, they should take into account the impact of the above externalities.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 24648.

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Date of creation: May 2010
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Handle: RePEc:pra:mprapa:24648
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  1. Reifschneider, David & Stevenson, Rodney, 1991. "Systematic Departures from the Frontier: A Framework for the Analysis of Firm Inefficiency," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(3), pages 715-23, August.
  2. Wing Chow, Clement Kong & Fung, Michael Ka Yiu, 2009. "Efficiencies and scope economies of Chinese airports in moving passengers and cargo," Journal of Air Transport Management, Elsevier, vol. 15(6), pages 324-329.
  3. Gillen, David & Lall, Ashish, 1997. "Developing measures of airport productivity and performance: an application of data envelopment analysis," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 33(4), pages 261-273, December.
  4. Curi, Claudia & Gitto, Simone & Mancuso, Paolo, 2010. "The Italian airport industry in transition: a performance analysis," Journal of Air Transport Management, Elsevier, vol. 16(4), pages 218-221.
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  8. Pels, Eric & Nijkamp, Peter & Rietveld, Piet, 2003. "Inefficiencies and scale economies of European airport operations," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 39(5), pages 341-361, September.
  9. Paolo Malighetti & Gianmaria Martini & Stefano Paleari & Renato Redondi, 2007. "An Empirical Investigation on the Efficiency, Capacity Ownership of Italian Airports," Rivista di Politica Economica, SIPI Spa, vol. 97(1), pages 157-188, January-F.
  10. Simar, Leopold & Wilson, Paul W., 2007. "Estimation and inference in two-stage, semi-parametric models of production processes," Journal of Econometrics, Elsevier, vol. 136(1), pages 31-64, January.
  11. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
  12. Daniel P. Kessler & Mark B. McClellan, 2000. "Is Hospital Competition Socially Wasteful?," The Quarterly Journal of Economics, MIT Press, vol. 115(2), pages 577-615, May.
  13. Barros, Carlos Pestana, 2008. "Technical efficiency of UK airports," Journal of Air Transport Management, Elsevier, vol. 14(4), pages 175-178.
  14. Charnes, A. & Cooper, W. W. & Golany, B. & Seiford, L. & Stutz, J., 1985. "Foundations of data envelopment analysis for Pareto-Koopmans efficient empirical production functions," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 91-107.
  15. Propper, Carol & Burgess, Simon & Green, Katherine, 2004. "Does competition between hospitals improve the quality of care?: Hospital death rates and the NHS internal market," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1247-1272, July.
  16. Battese, G E & Coelli, T J, 1995. "A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data," Empirical Economics, Springer, vol. 20(2), pages 325-32.
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