A new era for airport regulators through capacity investments

Abstract

Private and public airports' optimal actions may not coincide. While private airports usually pursue profit maximization, publicly owned airports look for maximum social welfare. Thus, the prices charged by private airports may differ from the socially optimal charges and public intervention may be needed. In this paper, we analyze airport charges when an increase in frequency produces positive or negative externalities and carriers have market power. We use the methodology of game theory to show that there may exist a level of capacity for which private and social objectives coincide, so no price regulation is needed. Thus, the usual role of regulators and planners could be modified in order to decide the appropriate capacity investments for which airport regulation is no longer necessary.