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Marginal costs estimation and market power of German airports

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  • Hakimov, Rustamdjan
  • Mueller, Juergen

Abstract

From a theoretical prospective, marginal costs are one of the main determinants of pricing policy. However, their complexity and to some extend the artificiality of marginal costs makes the concept very unpopular among practitioners, also in the aviation industry. Nevertheless, in this paper we aim to estimate cost functions for German airports and derive marginal costs for different types of aircraft using them. This allows us to make efficiency comparison for aeronautical activities. Moreover, using the results of Morrison (1982), we are also able to estimate the “k” coefficients of the Ramsey-pricing formula and then use it as a proxy for market power of these airports. As the result we obtain two rankings from the sample: the first is the cost efficiency ranking of airports, and the second ranking is with respect to market power.

Suggested Citation

  • Hakimov, Rustamdjan & Mueller, Juergen, 2014. "Marginal costs estimation and market power of German airports," Research in Transportation Economics, Elsevier, vol. 45(C), pages 42-48.
    • Handle: RePEc:eee:retrec:v:45:y:2014:i:c:p:42-48
    DOI: 10.1016/j.retrec.2014.07.006
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    References listed on IDEAS

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    1. Robert Malina, 2005. "Market power and the need for regulation in the German airport market," Working Papers 10, Institute of Transport Economics, University of Muenster, revised Mar 2006.
    2. Link, Heike & Götze, Wolfgang & Himanen, Veli, 2009. "Estimating the marginal costs of airport operation using multivariate time series models with correlated error terms," Journal of Air Transport Management, Elsevier, vol. 15(1), pages 41-46.
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    Cited by:

    1. Saremi, Maryam & Fallahi, Firouz & Pels, Eric & Salmani, Behzad & Covich, Mohsen Pourebadollahan, 2021. "Ramsey pricing of aircraft landing fees: A case study of Iranian airports," Research in Transportation Economics, Elsevier, vol. 90(C).

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    More about this item

    Keywords

    Airport; Marginal costs; Market power;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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