VERTICAL AGREEMENTS BETWEEN AIRPORTS AND CARRIERS

Tiziana D'Alfonso and Alberto Nastasi ()
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Tiziana D'Alfonso: Department of Economics and Technology Management, University of Bergamo Viale Marconi 5 - 24044 Dalmine (BG), Italy
Alberto Nastasi: Dipartimento di Informatica e Sistemistica "Antonio Ruberti" Sapienza, Universita' di Roma

No 2010-19, DIS Technical Reports from Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza"

Abstract: This paper investigates vertical contracts between airports and airlines, in the context of two competing facilities and three different types of agreements. The downstream market consists in a route operated by one leader and n-1 follower competing à la Stackelberg in each airport. In this sense, the paper adds to literature as it considers the issue of vertical contracts both in the airports competition and airlines competition. We develop a multistage facility-rivalry game where each airport and the respective dominant airline decide whether to enter into a contract and, if so, which one to engage in. In this framework, we investigate the Nash equilibrium to analyse the incentives for vertical contracts: we find that the airport and the dominant airline have incentive to collude in each facility. Nevertheless, the equilibrium is not efficient in terms of social welfare, so that there is a misalignment between private and social incentives

Keywords: vertical contracts; airports competition; airlines competition (search for similar items in EconPapers)
Date: 2010
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