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An Assessment on the Cost Structure of the UK Airport Industry: Ownership Outcomes and Long Run Cost Economies

Author Info

Listed author(s):
  • Anna Bottasso

    ()

    (Department of Economics, University of Genova)

  • Maurizio Conti

    ()

    (Department of Economics, University of Genova)

Abstract

In this paper we analyze the cost structure of the UK airport industry by estimating a variable cost function for the period 1994-2005. Overall results suggest that the long run average costs curve is U-shaped: it decreases until passenger traffic reaches approximately five millions, it remains flat over the range between five and fourteen million passengers and afterwards it starts to increase. Moreover, our findings provide evidence consistent with the existence of some degree of overcapitalization for the largest regulated airports. Finally, we analyze whether different forms of ownership entail cost differentials across airports and we find that privately owned airports are characterized by lower costs with respect to public and mixed ones, although cost differentials shrank over time as public and mixed airports improved their rate of cost reduction. Main results are robust to unobserved heterogeneity at the airport or market level and to possible endogeneity biases. Possible regulatory and policy implications of these results are also discussed.

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File URL: http://www.biblioecon.unito.it/biblioservizi/RePEc/tur/wpaper/n13.pdf
File Function: First version, 2010
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Paper provided by Former Department of Economics and Public Finance "G. Prato", University of Torino in its series Working papers with number 13.

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Length: 26 pages
Date of creation: Apr 2010
Handle: RePEc:tur:wpaper:13
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Keywords: scale economies; public ownership; airports;

Find related papers by JEL classification:

  • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
  • L91 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Transportation: General

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  11. Barros, Carlos Pestana, 2008. "Technical efficiency of UK airports," Journal of Air Transport Management, Elsevier, vol. 14(4), pages 175-178.
  12. Douglas W. Caves & Laurits R. Christensen & Joseph A. Swanson, 1981. "Economic Performance in Regulated and Unregulated Environments: A Comparison of U. S. and Canadian Railroads," The Quarterly Journal of Economics, Oxford University Press, vol. 96(4), pages 559-581.
  13. 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.
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  15. David Starkie, 2008. "The Airport Industry in a Competitive Environment: A United Kingdom Perspective," OECD/ITF Joint Transport Research Centre Discussion Papers 2008/15, OECD Publishing.
  16. Littlechild Stephen, 2003. "Reflections on Incentive Regulation," Review of Network Economics, De Gruyter, vol. 2(4), pages 1-27, December.
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Cited by:

  1. Fabrizio Erbetta & Carmelo Petraglia, 2011. "Drivers of Regional Efficiency Differentials in Italy: Technical Inefficiency or Allocative Distortions?," Growth and Change, Wiley Blackwell, vol. 42(3), pages 351-375, 09.

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