The importance of spatial economics for assessing airport competition

Abstract

This paper explores the relevance of spatial effects on airport competition. Drawing concentric circles of travel distances around it is the most commonly way to define an airport’s catchment area. The characteristics of the catchment area and available substitutes are compared, and assessments of market power made. It is generally recognized that the existence of spatial competition among airports, lies within one market, although sometimes, overlapping circles are examined on the premise that competition lies within these common areas. We look at economic models of spatial competition where there is no overlapping and argue that the stylized facts inferred from economic models of spatial competition have been overlooked. After a short review of airport competition, we introduce economic models for spatial competition and look at the implications of these in the context of airport competition.