Rivalry between Airport Ancillary and City-Center Supplies

30 Pages Posted: 16 Oct 2017 Last revised: 17 Jun 2018

See all articles by Achim Czerny

Achim Czerny

Hong Kong Polytechnic University - Faculty of Business

Hanxiang Zhang

Hong Kong Polytechnic University - Department of Logistics and Maritime Studies

Date Written: June 12, 2018

Abstract

Passengers can buy souvenirs, food and beverages or rent a car at the airport or in the city-center. This paper develops a basic model with unit demands for airport ancillary and city-center demands (passengers may park their one car and not many) to derive equilibrium pricing strategies of profit-maximizing airports and city-center companies and evaluates them from the social viewpoint. Passengers are myopic in the sense that only ticket prices matter for flight decisions or foresighted in the sense that non-aeronautical airport and city-center supplies matter for flight decisions, too. We find that the welfare evaluation of equilibrium airport pricing behavior can be independent of whether passengers are myopic or foresighted. Model extensions are analyzed to check the robustness of this independence result. They cover downward sloping individual demands for ancillary and city-center demands, the economic regulation of aeronautical prices, preferences for ancillary over city-center supplies, and airline market power.

Keywords: Airport, City-Center, Ancillary Goods, Myopic Passengers, Foresighted Passengers

JEL Classification: L9, R4

Suggested Citation

Czerny, Achim and Zhang, Hanxiang, Rivalry between Airport Ancillary and City-Center Supplies (June 12, 2018). Available at SSRN: https://ssrn.com/abstract=3053312 or http://dx.doi.org/10.2139/ssrn.3053312

Achim Czerny (Contact Author)

Hong Kong Polytechnic University - Faculty of Business ( email )

9/F, Li Ka Shing Tower
The Hong Kong Polytechnic University
Hong Kong, Hung Hom, Kowloon M923
China

Hanxiang Zhang

Hong Kong Polytechnic University - Department of Logistics and Maritime Studies ( email )

9/F, Li Ka Shing Tower
The Hong Kong Polytechnic University
Hong Kong, Hung Hom, Kowloon M923
China

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