Airport Prices in a Two-Sided Market Setting: Major US Airports

Ivaldi, Marc, Sokullu, Senay and Toru-Delibasi, Tuba (2015) Airport Prices in a Two-Sided Market Setting: Major US Airports. TSE Working Paper, n. 15-587, Toulouse

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Official URL: http://tse-fr.eu/pub/29375

Abstract

This paper analyzes the rationale of airport business models. First, it provides evidence that the airports should be considered as two sided markets because of significant network externalities between the airlines and the passengers. This result invalidates the traditional approach where the airport-airline-passenger relationship is considered as vertically integrated, taking passengers as final consumers. Second, a testing procedure aimed at eliciting the real business model of airports demonstrates that the major U.S. airports do not internalize the externalities existing between airlines and passengers. We find that these airports set profit maximizing prices for the non-aeronautical services to passengers and Ramsey prices for the aeronautical services to airlines. Given these results, we conduct a welfare analysis by simulating the implementation of profit maximizing prices when an airport fully accounts for the two-sidedness of its activities. In particular, we show that the impact on social welfare is not independent on the specific features of each airport and that the privatization of airports cannot be considered as the only solution for airports.

Item Type: Monograph (Working Paper)
Language: English
Date: May 2015
Place of Publication: Toulouse
Uncontrolled Keywords: Two-sided markets, Airport pricing, Airport regulation
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 21 Sep 2015 13:08
Last Modified: 11 Apr 2018 15:46
OAI ID: oai:tse-fr.eu:29375
URI: http://publications.ut-capitole.fr/id/eprint/18369

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