Market Structure, Countervailing Power and Price Discrimination: The Case of Airports

33 Pages Posted: 14 Mar 2011

See all articles by Jonathan Haskel

Jonathan Haskel

Imperial College Business School

Alberto Iozzi

Universita degli Studi di Roma

Tommaso M. Valletti

Imperial College Business School; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: March 2011

Abstract

We study bargained input prices where up and downstream firms can choose alternative vertical partners. We apply our model to airport landing fees where a number of interesting policy questions have arisen. For example, what is the impact of joint ownership of airports? Does airline countervailing power stop airports raising fees? Should airports be prohibited, as an EU directive intends, from charging differential prices to airlines? Our major findings are: (a) an increase in upstream concentration or in the substitutability between airports always increases the landing fee; (b) the effect of countervailing power, via an increase in downstream concentration, typically lowers landing fees, but depends on the competition regime between airlines and whether airports can price discriminate: airline concentration reduces the landing fee when downstream competition is in quantities, but if downstream competition is in prices landing fees fall only where airports cannot discriminate. Furthermore, only in a specific case (Bertrand competition, uniform landing fees and undifferentiated goods) will lower fees pass through to consumers. (c) With Cournot competition, uniform landing fees are always higher than discriminatory fees, while the reverse is true with Bertrand competition.

Keywords: Airlines, Airports, Countervailing power, Landing fees

JEL Classification: D43, L13, L93, R48

Suggested Citation

Haskel, Jonathan E. and Iozzi, Alberto and Valletti, Tommaso M., Market Structure, Countervailing Power and Price Discrimination: The Case of Airports (March 2011). CEPR Discussion Paper No. DP8280. Available at SSRN: https://ssrn.com/abstract=1782574

Jonathan E. Haskel (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Alberto Iozzi

Universita degli Studi di Roma ( email )

Via Columbia n.2
Rome, rome 00100
Italy
39 06 7259 5923 (Phone)
39 06 204 02 19 (Fax)

Tommaso M. Valletti

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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