Airport congestion pricing and cost recovery with side business
Yukihiro Kidokoro and
Transportation Research Part A: Policy and Practice, 2018, vol. 114, issue PA, 222-236
This paper explores the implications of an imperfectly competitive non-aeronautical market for cost recovery at a congestible airport. We show that aeronautical revenue under welfare maximization is short of its costs, because the optimal airport charge must be set lower than the first-best level, to counteract market power in the non-aeronautical market, which results in insufficient revenue. However, imperfectly competitive non-aeronautical service (“side business”) leads to a positive profit that the airport may share, thereby improving the chance to recover costs. We demonstrate that airport overall cost recovery, including the profit from side business, may be satisfied, depending on the profit from side business and the demand elasticity of side business. Our analysis further identifies the role of “another good,” which can be a substitute or a complement for non-aeronautical service, in cost recovery. We analyze both cases of exogenous and endogenous prices of another good. When the price of another good is exogenous, the price higher (lower) than the marginal cost in the another-good market makes cost recovery less (more) likely. When the price of another good is endogenous, cost recovery is more likely (unlikely) to hold when non-aeronautical service and another good are closer complements (substitutes) or/and the airport absorbs more (less) profits from side business. The possibility that a monopoly airport fails to satisfy cost recovery is also examined.
Keywords: Cost recovery; Airport congestion pricing; Aeronautical service; Non-aeronautical service; Side business; Market power (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:transa:v:114:y:2018:i:pa:p:222-236
Ordering information: This journal article can be ordered from
https://shop.elsevie ... _01_ooc_1&version=01
Access Statistics for this article
Transportation Research Part A: Policy and Practice is currently edited by John (J.M.) Rose
More articles in Transportation Research Part A: Policy and Practice from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().