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Airport capacity and congestion pricing with both aeronautical and commercial operations

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Abstract

In this paper, we study airport decisions on pricing and capacity investment with both aeronautical and concession operations. In addition, the airport under consideration is serving air carriers who have market power. We find that a profit-maximizing airport would over-invest in capacity in the sense that the marginal (social) benefit of capacity is smaller than the marginal (social) cost. This tendency of overinvestment still holds when the private airport is under the regulatory constraint of cost recovery in its aeronautical operation (the dual-till regulation). We also find that the capacity investment by a public airport will be socially efficient in the sense that the marginal benefit of capacity is equal to the marginal cost of capacity. However, somewhat surprisingly, the capacity investment of the public airport will be inefficient if it is under regulatory constraints. Specifically, the airport will also over-invest in capacity, whether it is under a single-till regulation or a dual-till regulation. Finally, it is noteworthy that the inefficiency in airport investment is driven by the interaction between the airport and the carriers who have market power.

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[Zhang, Anming] Univ British Columbia, Sauder Sch Business, Vancouver, BC V6T 1Z2, Canada

[Zhang, Yimin] China Europe Int Business Sch, 699 Hongfeng Rd, Shanghai 201206, Peoples R China


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Source

Transportation Research Part B: Methodological

ISSN:0191-2615

Year:2010

Issue:3

Volume:44

Page:404-413

Powered by JCR@2010

ESI Discipline:ENGINEERING;

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