Reforming UK Airport Regulation

Michael Beesley (1999) was critical of the approach used in the UK to regulate its major airports. In the case of Heathrow, in particular, he argued that price-cap regulation was inappropriate. In this paper David Starkie, after examining some unusual economic characteristics of the airports industry, reaches a similar conclusion. He argues that the linking of complementary demands and location rents at major airports provides an incentive for dominant airports to increase their output beyond the level that one would expect from profit-maximising concerns providing only basic airport services. This incentive, together with recently enhanced competition law in the UK, is argued to make formal price control unnecessary. © The London School of Economics and the University of Bath 2001