The Assessment of Market Power of Airports

Abstract

Airport regulation regimes are under revision in many countries. The decision about the extent of airport regulation is usually based on an economic analysis of market power, which is done in two steps. The first step involves defining the relevant markets the airport is operating on. This is based on an economic analysis of the particular circumstances of the airport, and must be compatible with the competition law. The second step consists of the evaluation of the airport's competitive position in all identified markets. Due to industry particularities, many diverse issues must be taken into account in this process, such as questions of upstream and downstream market interaction, airport congestion, peak-load pricing, or offsetting bargaining power. Many of these questions have been theoretically analyzed in the industrial organization literature, but have only rarely been applied in practical competition analysis. This paper builds a bridge between the theoretical insights and their practical application to airport regulation policy. We derive the principles for a sound economic analysis of the market power of airports, given the time and data constraints encountered in practice by the regulatory authorities and other involved parties.