Limited Access to Airport Facilities and Market Power in the Airline Industry

Ciliberto, Federico; Williams, Jonathan W.

Limited Access to Airport Facilities and Market Power in the Airline Industry

Journal of Law and Economics, Volume 53, Number 3 (August 2010), pp. 467-495

48 Pages Posted: 9 Jun 2009 Last revised: 18 Apr 2012

See all articles by Federico Ciliberto

Federico Ciliberto

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

Date Written: August 1, 2010

Abstract

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.

Keywords: Market Power, Airline Industry, Barriers to Entry, Product Differentiation, Hub Premium, Airport Facilities

JEL Classification: L13, L93

Suggested Citation: Suggested Citation

Ciliberto, Federico and Williams, Jonathan W., Limited Access to Airport Facilities and Market Power in the Airline Industry (August 1, 2010). Journal of Law and Economics, Volume 53, Number 3 (August 2010), pp. 467-495. Available at SSRN: https://ssrn.com/abstract=975955