Multi-product Airport Competition and Optimal Airport Charges

[en] This paper examines the importance of commercial revenue on optimal airport charges in a Hotelling-type duopoly airports competition. Each airport offers multiproducts to heterogeneous consumers (airlines and passengers) and sets commercial and landing charges and serves. The airport-airline bundle competes for leisure and business passengers. The setting of landing charges under different regulatory regimes is investigated. We demonstrate that in the leisure travel market, which ignores schedule delay cost, the optimal landing fee is invariant to the regulatory scheme, and concession revenue is determined by an airport’s home market size. In the business travel market, the optimal landing charge is smaller if concession revenue is included in setting the landing fee than if it is not included. In the former case, increasing passenger volume does not guarantee increases in airports’ aeronautical revenue, and a negative impact may exist if the weight of concession profit out of total profit is small.

Disciplines :

Quantitative methods in economics & management

Author, co-author :

Wan, Xi

ZOU, Benteng ; University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Department of Economics and Management (DEM)

External co-authors :

yes

Language :

English

Title :

Multi-product Airport Competition and Optimal Airport Charges

Publication date :

2024

Journal title :

Research in Transportation Economics

ISSN :

0739-8859

eISSN :

1875-7979

Publisher :

Elsevier, United Kingdom

Volume :

103

Pages :

101410

Peer reviewed :

Peer Reviewed verified by ORBi

Available on ORBilu :

since 17 January 2024

Statistics

Number of views

34 (4 by Unilu)

Number of downloads

29 (1 by Unilu)

More statistics

Scopus citations^®

Scopus citations^®
without self-citations

Bibliography

Arnott, R., De Palma, A., Lindsey, R., The welfare effects of congestion tolls with heterogeneous commuters. Journal of Transport Economics and Policy, 1994, 139–161.
Başar, G., Bhat, C., A parameterized consideration set model for airport choice: an application to the San Francisco Bay area. Transportation Research, Part B (Methodological) 38:10 (2004), 889–904.
Basso, L.J., Zhang, A., Congestible facility rivalry in vertical structures. Journal of Urban Economics 61:2 (2007), 218–237.
Basso, L.J., Zhang, A., On the relationship between airport pricing models. Transportation Research, Part B (Methodological) 42:9 (2008), 725–735.
Borenstein, S., Netz, J., Why do all the flights leave at 8 am?: Competition and departure-time differentiation in airline markets. International Journal of Industrial Organization 17:5 (1999), 611–640.
Bracaglia, V., Nastasi, A., et al. Competition between multiproduct airports. Economics of Transportation 3:4 (2014), 270–281.
Brueckner, J.K., Internalization of airport congestion: A network analysis. International Journal of Industrial Organization 23:7–8 (2005), 599–614.
Brueckner, J., Flores-Fillol, R., Airline schedule competition. Review of Industrial Organization 30:3 (2007), 161–177.
Brueckner, J.K., Van Dender, K., Atomistic congestion tolls at concentrated airports? Seeking a unified view in the internalization debate. Journal of Urban Economics 64:2 (2008), 288–295.
Brueckner, J.K., Zhang, Y., A model of scheduling in airline networks: How a hub-and-spoke system affects flight frequency, fares and welfare. Journal of Transport Economics and Policy (JTEP) 35:2 (2001), 195–222.
Czerny, A.I., Price-cap regulation of airports: Single-till versus dual-till. Journal of Regulatory Economics 30:1 (2006), 85–97.
Czerny, A.I., Public versus private airport behavior when concession revenues exist. Economics of Transportation 2:1 (2013), 38–46.
Czerny, A.I., Lindsey, R., Multiproduct pricing with core goods and side goods. 2014 Unpublished manuscript.
D'Alfonso, T., Bracaglia, V., Two-sidedness and welfare neutrality in airport concessions. The economics of airport operations, 2017, Emerald Publishing Limited, 49–68.
D'Aspremont, C., Thisse, J., On Hotelling's “stability in competition”. Econometrica (pre-1986), 47(5), 1979.
De Palma, A., Criado, C.O., Randrianarisoa, L.M., When Hotelling meets Vickrey. Service timing and spatial asymmetry in the airline industry. Journal of Urban Economics 105 (2018), 88–106.
Douglas, G.W., Miller, J.C., Quality competition, industry equilibrium, and efficiency in the price-constrained airline market. The American Economic Review 64:4 (1974), 657–669.
Douglas, G., Miller III, J., Economic regulation of domestic air transport. Theory and practice. 1974.
Evangelinos, C., Staub, N., Marcucci, E., Gatta, V., The impact of airport parking fees on the tourist's airport/airline choice behavior. Journal of Air Transport Management, 90, 2021, 101961.
Flores-Fillol, R., Iozzi, A., Valletti, T., Platform pricing and consumer foresight: The case of airports. Journal of Economics & Management Strategy 27:4 (2018), 705–725.
Flores-Fillol, R., Moner-Colonques, R., Strategic formation of airline alliances. Journal of Transport Economics and Policy (JTEP) 41:3 (2007), 427–449.
Geuens, M., Vantomme, D., Brengman, M., Developing a typology of airport shoppers. Tourism Management 25:5 (2004), 615–622.
Gillen, D., Mantin, B., The importance of concession revenues in the privatization of airports. Transportation Research 68 (2014), 164–177.
Graham, A., How important are commercial revenues to today's airports?. Journal of Air Transport Management 15:3 (2009), 106–111.
Harvey, G., Airport choice in multiple-airport regions. Transportation Research Part A: General 21:6 (1987), 439–449.
Hess, S., Polak, J.W., Airport, airline and access mode choice in the San Francisco Bay area. Papers in Regional Science 85:4 (2006), 543–567.
Hotelling, H., Stability in competition. The Economic Journal 39 (1929), 41–56.
Ishii, J., Jun, S., Van Dender, K., Air travel choices in multi-airport markets. Journal of Urban Economics 65:2 (2009), 216–227.
Ivaldi, M., Sokullu, S., Toru, T., Chapter 10 Are airports two-sided platforms?: A methodological approach. Pricing behavior and non-price characteristics in the airline industry, 2012, Emerald Group Publishing Limited, 213–232.
Ivaldi, M., Sokullu, S., & Toru, T. (2015). Airport prices in a two-sided market setting: Major US airports: CEPR Discussion Paper No. DP10658.
Kratzsch, U., Sieg, G., Non-aviation revenues and their implications for airport regulation. Transportation Research Part E: Logistics and Transportation Review 47:5 (2011), 755–763.
Lan, Y., Ball, M.O., Karaesmen, I.Z., Zhang, J.X., Liu, G.X., Analysis of seat allocation and overbooking decisions with hybrid information. European Journal of Operational Research 240:2 (2015), 493–504.
Lederer, P.J., A competitive network design problem with pricing. Transportation Science 27:1 (1993), 25–38.
Lian, J., Rønnevik, J., Airport competition - Regional airports losing ground to main airports. Journal of Transport Geography 19:1 (2011), 85–92.
Lin, M.H., Hub-airport competition: Connecting time differentiation and concession consumption. Australian Economic Papers 45:4 (2006), 299–317.
Lin, M.H., Airport privatization in congested hub–spoke networks. Transportation Research, Part B (Methodological) 54 (2013), 51–67.
Lin, M.H., Airport congestion and capacity when carriers are asymmetric. International Journal of Industrial Organization 62 (2019), 273–290.
Morrison, S., Winston, C., The evolution of the airline industry. 2010, Brookings Institution Press.
Mun, S.I., Teraji, Y., The organisation of multiple airports in a metropolitan area. Journal of Transport Economics and Policy (JTEP) 46:2 (2012), 221–237.
Nerja, A., Can parallel airline alliances be welfare improving? The case of airline–airport vertical agreement. Transportation Research Part A: Policy and Practice, 167, 2023, 103559.
Noruzoliaee, M., Zou, B., Zhang, A., Airport partial and full privatization in a multi-airport region: Focus on pricing and capacity. Transportation Research Part E: Logistics and Transportation Review 77 (2015), 45–60.
Oum, T.H., Zhang, A., Zhang, Y., Alternative forms of economic regulation and their efficiency implications for airports. Journal of Transport Economics and Policy (JTEP) 38:2 (2004), 217–246.
Panzar, J.C., Equilibrium and welfare in unregulated airline markets. The American Economic Review 69:2 (1979), 92–95.
Papatheodorou, A., Lei, Z., Leisure travel in Europe and airline business models: A study of regional airports in Great Britain. Journal of Air Transport Management 12:1 (2006), 47–52.
Pels, E., Nijkamp, P., Rietveld, P., Access to and competition between airports: A case study for the San Francisco Bay area. Transportation Research Part A 37:1 (2003), 71–83.
Richard, O., Flight frequency and mergers in airline markets. International Journal of Industrial Organization 21:6 (2003), 907–922.
Sainz-González, R., Núnez-Sánchez, R., Coto-Millán, P., The impact of airport fees on fares for the leisure air travel market: The case of Spain. Journal of Air Transport Management 17:3 (2011), 158–162.
Shepard, K., The algorithm behind plane ticket prices and how to get the best deal. 2019 Illumin Magazine.
Starkie, D., Reforming UK airport regulation. Journal of Transport Economics and Policy (JTEP) 35:1 (2001), 119–135.
Van den Berg, V., Verhoef, E.T., Congestion tolling in the bottleneck model with heterogeneous values of time. Transportation Research, Part B (Methodological) 45:1 (2011), 60–78.
Van Dender, K., Determinants of fares and operating revenues at US airports. Journal of Urban Economics 62:2 (2007), 317–336.
Wan, Y., Jiang, C., Zhang, A., Airport congestion pricing and terminal investment: Effects of terminal congestion, passenger types, and concessions. Transportation Research, Part B (Methodological) 82 (2015), 91–113.
Yan, J., Winston, C., Can private airport competition improve runway pricing? The case of San Francisco Bay area airports. Journal of Public Economics 115 (2014), 146–157.
Zhang, A., Zhang, Y., Concession revenue and optimal airport pricing. Transportation Research Part E: Logistics and Transportation Review 33:4 (1997), 287–296.
Zhang, A., Zhang, Y., Airport charges and capacity expansion: Effects of concessions and privatization. Journal of Urban Economics 53:1 (2003), 54–75.
Zhang, A., Zhang, Y., Airport capacity and congestion when carriers have market power. Journal of Urban Economics 60:2 (2006), 229–247.