Airport Prices in a Two-Sided Market Setting: Major US Airports

Marc Ivaldi, Senay Sokullu and Tuba Toru-Delibasi
Authors registered in the RePEc Author Service: Tuba Toru Delibaşı ()

No 15-587, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: This paper analyzes the rationale of airport business models. First, it provides evidence that the airports should be considered as two sided markets because of significant network externalities between the airlines and the passengers. This result invalidates the traditional approach where the airport-airline-passenger relationship is considered as vertically integrated, taking passengers as final consumers. Second, a testing procedure aimed at eliciting the real business model of airports demonstrates that the major U.S. airports do not internalize the externalities existing between airlines and passengers. We find that these airports set profit maximizing prices for the non-aeronautical services to passengers and Ramsey prices for the aeronautical services to airlines. Given these results, we conduct a welfare analysis by simulating the implementation of profit maximizing prices when an airport fully accounts for the two-sidedness of its activities. In particular, we show that the impact on social welfare is not independent on the specific features of each airport and that the privatization of airports cannot be considered as the only solution for airports.

Keywords: Two-sided markets; Airport pricing; Airport regulation (search for similar items in EconPapers)
Date: 2015-05
New Economics Papers: this item is included in nep-com, nep-net, nep-tre and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Working Paper: Airport Prices in a Two-Sided Market Setting: Major US Airports (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:29375

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