Platform pricing and consumer foresight: The case of airports

Ricardo Flores-Fillol, Alberto Iozzi and Tommaso Valletti

Working Papers from Universitat Rovira i Virgili, Department of Economics

Abstract: Airports have become platforms that derive revenues from both aeronautical and commercial activities. The demand for these services is characterized by a one-way complementarity in that only air travelers can purchase retail goods at the airport terminals. We analyze a model of optimal airport behavior in which this one-way complementarity is subject to consumer foresight, i.e., consumers may not anticipate in full the ex post retail surplus when purchasing a flight ticket. An airport sets landing fees, and, in addition, also 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, from which it obtains the largest share of profits. However, even a very small amount of anticipation of the consumer surplus from retail activities changes significantly the airport’s choices: the optimal airport 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, where consumers enjoy a large surplus. 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. Keywords: two-sided markets, platform pricing, one-way demand complementarity, consumer foresight. JEL classification: L1, L2, L93.

Keywords: Organització industrial; Aviació comercial; Aeroports; Comerç al detall; Consumidors; 338 - Situació econòmica. Política econòmica. Gestió; control i planificació de l'economia. Producció. Serveis. Turisme. Preus (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-com, nep-mkt and nep-tre
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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http://hdl.handle.net/2072/242278

Related works:
Journal Article: Platform pricing and consumer foresight: The case of airports (2018)
Working Paper: Platform Pricing and Consumer Foresight: The Case of Airports (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:urv:wpaper:2072/242278

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