The development of competition in the UK airport market

This paper, a condensed version of a Beesley lecture presented on 5th November,1 examines the possible consequences of the Competition Commission's decision to force the divestment of two of BAA's London airports (as well as one in Scotland). Taking as its starting point the Competition Commission's view that it will fall to the CAA as airports regulator to modify regulation appropriately to promote competition, the paper argues that, while economic regulation can be a justified response to the risk of abuse of market power, applied inappropriately it can inhibit the development of competition and ultimately harm consumers. The potential for greater competition is therefore likely to change the economic regulation applied to airports. The paper argues that competition will be encouraged by ensuring clarity about how the boundary between regulation and competition will operate. This will necessitate work to demonstrate how decisions will be made about where, and to what extent, regulation will be applied. The paper also argues that reform of the statutory framework for regulation could be useful in supporting the transition to a more competitive market, by providing a more flexible set of tools to regulate different levels of market power. Finally, the paper discusses the implications of government policy regarding airport development and the potential importance of European-level regulation.