3.6 – Regional Airport Subsidies in Europe: Good Public Policy?

By Peter Forsyth

forsythIn Europe, many regional governments have been subsidising their local airports, in the hope of attracting low cost carriers and more tourism. These subsidies have been controversial as it often remains unclear whether these subsidies enhance the welfare of the region which offers them, and that of the nation or Community as a whole. Forsyth argues that airport subsidies must be regarded as questionable public policy, even from the perspective of the region offering the subsidy. The cost of these subsidies if often underestimated, and the benefit from them greatly overestimated.

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Competition versus Predation in Aviation Markets edited by Peter Forsyth, David W. Gillen, Otto G. Mayer and Hans-Martin Niemeier

Competition_versus_predation_aviation_markets_smallThe increased interest in Low Cost Carriers and their success in gaining market shares have put emphasis on the strategic behaviour of airline incumbents. The dynamics that come along with new entrants will lead to organizational behaviour to focus on under pricing and to prefer monopoly profits afterwards. At what point does a strategic  reaction from the incumbent become predatory behaviour?

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