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Vertical Contracts between Airports and Airlines Is there a Trade-off between Welfare and Competitiveness?

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  • Cristina Barbot

Abstract

Airports and airlines have been increasingly establishing vertical contracts, with important implications for policy issues, namely for regulation and price discrimination legislation. In this paper, we develop a model that analyses the effects of three types of vertical contract, regarding welfare, pro-competitiveness and the scope for regulation. We find that two types of contract are anti-competitive, and that in all of them consumers are better off, though within some conditions. We also conclude that regulation may improve welfare, depending on the type of contract, and that price capping has different effects according to the facility which has its price capped. © 2011 LSE and the University of Bath

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  • Cristina Barbot, 2011. "Vertical Contracts between Airports and Airlines Is there a Trade-off between Welfare and Competitiveness?," Journal of Transport Economics and Policy, University of Bath, vol. 45(2), pages 277-302, May.
    • Handle: RePEc:tpe:jtecpo:v:45:y:2011:i:2:p:277-302
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    Cited by:

    1. Oliveira, Marcus V.R. & Oliveira, Alessandro V.M., 2018. "What drives effective competition in the airline industry? An empirical model of city-pair market concentration," Transport Policy, Elsevier, vol. 63(C), pages 165-175.
    2. Lohmann, Gui & Trischler, Jakob, 2017. "Licence to build, licence to charge? Market power, pricing and the financing of airport infrastructure development in Australia," Transport Policy, Elsevier, vol. 59(C), pages 28-37.
    3. Nerja, Adrián, 2023. "Can parallel airline alliances be welfare improving? The case of airline–airport vertical agreement," Transportation Research Part A: Policy and Practice, Elsevier, vol. 167(C).
    4. Choi, Jong Hae & Park, Yonghwa & Wang, Kun & Xia, Wenyi, 2020. "Whether low-cost-carrier passengers spend more on duty-free goods at the airport? Evidence from Incheon International Airport," Journal of Air Transport Management, Elsevier, vol. 86(C).
    5. D’Alfonso, Tiziana & Nastasi, Alberto, 2012. "Vertical relations in the air transport industry: A facility-rivalry game," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 48(5), pages 993-1008.
    6. Karanki, Fecri, 2024. "Cross-subsidization and U.S. airports," Transport Policy, Elsevier, vol. 145(C), pages 150-160.
    7. Baozhuang Niu & Zhipeng Dai & Lei Chen, 2022. "Information leakage in a cross-border logistics supply chain considering demand uncertainty and signal inference," Annals of Operations Research, Springer, vol. 309(2), pages 785-816, February.
    8. Nerja, Adrian, 2021. "Exclusivity in concession revenue sharing contracts," MPRA Paper 119096, University Library of Munich, Germany.
    9. Xiao, Yi-bin & Fu, Xiaowen & Oum, Tae H. & Yan, Jia, 2017. "Modeling airport capacity choice with real options," Transportation Research Part B: Methodological, Elsevier, vol. 100(C), pages 93-114.
    10. Ha, Hun-Koo & Wan, Yulai & Yoshida, Yuichiro & Zhang, Anming, 2013. "Airline market structure and airport efficiency: Evidence from major Northeast Asian airports," Journal of Air Transport Management, Elsevier, vol. 33(C), pages 32-42.
    11. Button, Kenneth & Neiva, Rui, 2013. "Single European Sky and the functional airspace blocks: Will they improve economic efficiency?," Journal of Air Transport Management, Elsevier, vol. 33(C), pages 73-80.
    12. Wang, Fan & Zhuo, Xiaopo & Niu, Baozhuang, 2017. "Strategic entry to regional air cargo market under joint competition of demand and promised delivery time," Transportation Research Part B: Methodological, Elsevier, vol. 104(C), pages 317-336.
    13. Nerja, A. & Sánchez, M., 2021. "The effects of concession revenue sharing contracts in airport competition," Economics of Transportation, Elsevier, vol. 28(C).
    14. Xiao, Yibin & Fu, Xiaowen & Zhang, Anming, 2016. "Airport capacity choice under airport-airline vertical arrangements," Transportation Research Part A: Policy and Practice, Elsevier, vol. 92(C), pages 298-309.
    15. Xu, Fangzhou & Hanaoka, Shinya, 2021. "Effects of airport terminal competition: A vertical structure approach," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 145(C).
    16. Karanki, Fecri & Lim, Siew Hoon, 2020. "The effects of use agreements on airport efficiency," Journal of Air Transport Management, Elsevier, vol. 84(C).
    17. Nerja, Adrián, 2022. "Exclusivity in concession revenue sharing contracts," Journal of Air Transport Management, Elsevier, vol. 99(C).
    18. Barbot, Cristina & D'Alfonso, Tiziana, 2014. "Why do contracts between airlines and airports fail?," Research in Transportation Economics, Elsevier, vol. 45(C), pages 34-41.
    19. Zheng, Shiyuan & Fu, Xiaowen & Jiang, Changmin & Ge, Ying-En, 2020. "Airline investments in exclusive airport facilities: Timing decisions under demand ambiguity," Transportation Research Part B: Methodological, Elsevier, vol. 139(C), pages 343-363.
    20. Saraswati, Batari & Hanaoka, Shinya, 2014. "Airport–airline cooperation under commercial revenue sharing agreements: A network approach," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 70(C), pages 17-33.
    21. Zhu, Shengda & Fu, Xiaowen & Bell, Michael G.H., 2021. "Container shipping line port choice patterns in East Asia the effects of port affiliation and spatial dependence," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 156(C).
    22. Adrian Nerja, 2017. "Effects of concession revenue sharing contracts and airline alliances in airport competition," Discussion Papers in Economic Behaviour 0317, University of Valencia, ERI-CES.
    23. Tsunoda, Yushi, 2023. "Airport concession revenue sharing and entry deterrence," Economics of Transportation, Elsevier, vol. 33(C).

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