A general-equilibrium analysis of airport pricing,capacity, and regulation |
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| Affiliation: | 1. National Graduate Institute for Policy Studies, Tokyo, Japan;2. Osaka University of Economics, Osaka, Japan;3. Sauder School of Business, University of British Columbia, Vancouver, BC, Canada;1. Florida State University, 288 Bellamy Building, Tallahassee, FL 32306, USA;2. Florida State University and NBER, 279 Bellamy Building, Tallahassee, FL 32306, USA;3. Florida State University, 039-A Bellamy Building, Tallahassee, FL 32306, USA;1. Top Institute for Evidence Based Education Research, Maastricht University, Kapoenstraat 2, 6200 MD Maastricht, The Netherlands;2. Leuven Economics of Education Research, University of Leuven (KU Leuven), Naamsestraat 69, Leuven B-3000, Belgium;3. Norwegian Business School (BI), Nydalsveien 37, Oslo N-0442, Norway;4. Department of Applied Economics (APEC), Vrije Universiteit Brussel, Pleinlaan 2, 1050 Brussel, Belgium;1. University of Lyon and Sciences Po, France;2. ThEMA (University of Cergy-Pontoise) and SERC (LSE), France;1. Vivid Economics, 163 Eversholt Street, London NW1 1BU, UK;2. Department of Economics, University of Oxford, Manor Road, Oxford OX1 3UQ, UK;1. University of Oklahoma, Department of Political Science, 455 W. Lindsey St., 205 Dale Hall Tower, Norman, OK 53706, United States;2. The Ohio State University, John Glenn College of Public Affairs, 1810 College Road, 110 Page Hall, Columbus, OH 43210, United States |
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| Abstract: | Using a general-equilibrium model that includes consumers, airlines, and an airport with both aeronautical services and non-aeronautical services, this study investigates the airport's decisions on its aeronautical charge and capacity, as well as the size of its non-aeronautical services. In contrast to the existing literature, we formally model an airport's non-aeronautical services by taking into account the endogenous determination of the size of the airport's non-aeronautical services. First, we characterize the results for welfare maximization, and find that the self-financing property does not hold. Apart from carriers’ market power as a source of the failure for the self-financing property, we identify the presence of non-aeronautical services as a new source. Further, we show that the common practice of cross-subsidizing from the non-aeronautical to aeronautical services is incompatible with welfare maximization because welfare maximization requires exact self-financing within the non-aeronautical sector. Second, we derive the results for profit maximization by a monopolistic airport, and demonstrate that the imposition of two taxes, one on the airport's aeronautical services and the other on its capacity investment, can recover the welfare-maximization results. Third, we analyze the two types of regulation, single till and dual till, which are often used in practice, and show that dual-till regulation yields higher welfare than single-till regulation, as long as the profit from non-aeronautical services is positive. This result is in contrast to the prevailing wisdom in the literature, which in general favors single-till regulation. |
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