Investigating Airports’ Market Power

airline_gameBy Volodymyr Bilotkach and Andreas Polk

The ongoing liberalization process in aviation affects all segments of the industry. Nowadays we are used to thinking about airlines as competitive firms as if the industry had not been regulated, and airlines had never been state-owned monopolies. But liberalization is more than that. It also affects the upstream production stages, such as the provision of ground-handling services or the supply of airport infrastructure. Whereas the former services are liberalized to a certain extent, airports are subject to regulation in most countries. The argument made here is that airports are regional monopolies and – as they provide necessary infrastructure to the airlines – they need to be regulated. But do airports in fact have market power? And if so, does market power exist with respect to all services an airport provides? If we were asked to evaluate whether a particular airport has market power, how are we to proceed with the analysis? In order to address these questions, it is necessary to apply general economic ideas to the context of the aviation industry. Due to particularities of airport markets, this is not a straightforward task. To address these issues, we first discuss how the assessment of market power of airports relates to the institutional contexts of the hosting countries. We then turn to some of what we think are the most important economic issues for the assessment of the market power of airports, and how these factors might affect the analysis of market power in a particular context of an airport under review.

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