Platform pricing and consumer foresight: The case of airports

Ricardo Flores‐Fillol, Alberto Iozzi and Tommaso Valletti
Authors registered in the RePEc Author Service: Ricardo Flores-Fillol

Journal of Economics & Management Strategy, 2018, vol. 27, issue 4, 705-725

Abstract: We analyze the optimal behavior of a platform providing essential inputs to downstream firms selling a primary and a second complementary good. Final demand is affected by consumer foresight, that is, consumers may not anticipate the ex post surplus from the secondary good when purchasing the primary good. We first set up a reduced‐form platform model and evaluate the effects of consumer foresight on the platform's optimal decisions. Then, we specialize the analysis in the context of airports, which derive revenues from both aeronautical and, increasingly, commercial activities. An airport sets landing fees and, in addition, it chooses the retail market structure by selecting the number of retail concessions to be awarded. We find that, with perfectly myopic consumers, the airport chooses to attract more passengers via low landing fees, and also sets the minimum possible number of retailers in order to increase the concessions’ revenues. However, even a very small amount of anticipation of the consumer surplus from retail activities changes significantly the airport's choices: the optimal policy is dependent on the degree of differentiation in the retail market. When consumers instead have perfect foresight, the airport establishes a very competitive retail market. This attracts passengers and it is exploited by the airport by charging higher landing fees, which then constitute the largest share of its profits. Overall, the airport's profits are maximal when consumers have perfect foresight.

Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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https://doi.org/10.1111/jems.12253

Related works:
Working Paper: Platform Pricing and Consumer Foresight: The Case of Airports (2015)
Working Paper: Platform pricing and consumer foresight: The case of airports (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jemstr:v:27:y:2018:i:4:p:705-725

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