Limited Access to Airport Facilities and Market Power in the Airline Industry
University of Virginia - Department of Economics; Centre for Economic Policy Research (CEPR)
Jonathan W. Williams
University of North Carolina (UNC) at Chapel Hill - Department of Economics
August 1, 2010
Journal of Law and Economics, Volume 53, Number 3 (August 2010), pp. 467-495
We investigate the role of limited access to airport facilities as a determinant of the hub premium in the US airline industry. We use original data from competition plans that airports are required to submit to the Department of Transportation in compliance with the Aviation Investment and Reform Act for the 21st Century. We collect information on the availability and control of airport gates, leasing arrangements, and other restrictions limiting the expansion of airport facilities.
We find that the hub premium is increasing in the ticket fare. We find that control of gates is a crucial determinant of this premium. Limits on the fees that airlines can charge for subleasing their gates lower the prices charged by airlines. Finally, control of gates and restrictions on sublease fees explain high fares only when there is a scarcity of gates relative to the number of departures out of an airport.
Number of Pages in PDF File: 48
Keywords: Market Power, Airline Industry, Barriers to Entry, Product Differentiation, Hub Premium, Airport Facilities
JEL Classification: L13, L93
Date posted: June 9, 2009 ; Last revised: April 18, 2012