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This paper develops a tractable model of third-degree price discrimination in airline markets that features two types of passengers with different time valuations, carriers in Cournot competition and a congested infrastructure. We find that price discrimination always leads to a loss of social welfare when, in the first stage, the congestion charge is chosen to maximize welfare by incorporating carriers’ behavior in the second stage. We also show that the welfare loss can be small if, in the process of choosing the optimal airport charges, carriers were treated as atomistic.
This paper analyzes a congested airport that provides aeronautical services to airlines and concessions to retailers and car rental companies. The sum of retail demands inside and outside the airport area is fixed, while an increase of the passenger quantity increases car rental demand. It is shown that an increase of the per passenger retail profit can reduce the private aeronautical charge and the private car rental charge. By contrast, the effect of car rentals on the private aeronautical charge is ambiguous. The welfare-optimal passenger number and aeronautical charge are both independent of retail profit.
We consider a public and congested airport served by airlines that may have market power, and two types of travelers with different relative values of time. We find that in the absence of passenger-type-based price discrimination by airlines, it can be useful to increase the airport charge so as to protect passengers with a great relative time value from excessive congestion caused by passengers with a low relative time value. As a result, the socially efficient airport charge can be substantially higher than what we learned from the recent literature on congestion pricing with non-atomistic airlines.
This paper considers a transport network with two firms that operate a parallel service on a hub-to-hub connection and monopoly services on spoke-to-hub connections under increasing returns to scale. We find the following: A symmetric equilibrium cannot occur under independent (non-cooperative) pricing when the number of spoke-to-spoke passengers becomes positive. The effect of cooperative pricing on mark-ups in spoke-to-hub, hub-to-hub and spoke-to-spoke markets (where double marginalization can occur) can be positive or negative. Cooperation can reduce total welfare though hub-to-hub markets are small.
The regulation of rail network access is a key component of the EU policy that aims to strengthen rail markets. Two specific regulations are proposed: (i) a priority for long-distance (freight) services and (ii) a scarcity premium. Based on a congested network with two rail links, numerical simulations demonstrate that total surplus can be greater under the priority rule, which depends on the network charge per train-kilometer. Consumer surplus, on the other hand, is always greater under the priority rule, while fixed network-cost recovery is easier to achieve if a scarcity premium exists.
Airlines frequently use code-share agreements allowing each other to market seats on flights operated by partner airlines. Regulation may allow code-share agreements with antitrust immunity (cooperative price setting), or without antitrust immunity, or not at all. I compare relative welfare effects of these regulation regimes for complementary airline networks. A crucial point is that such agreements are used to identify and price discriminate interline passengers. I find that interline passengers always benefit from code-share agreements while non-interline passengers are worse off. Furthermore, I show that the second effect questions the overall usefulness of code-share agreements from a welfare perspective.
This paper considers a congested airport that provides aeronautical services to airlines and concessions to retailers or, respectively, car rental companies. It is shown that airport retailers exert downward pressure on the private aeronautical charge. On the other hand, the effect of car rentals on the private aeronautical charge is ambiguous. By contrast, the first-best airfare and aeronautical charge are independent of retail profits, while they are positively related to car rentals. Finally, the comparison of private and welfare-oriented airport behavior shows that private behavior can lead to the welfare-optimal outcome when commercial services exist.