Abstract:

What is the primary rationale for the regulation of airport take-off and landing charges? The conventional economic response focuses on the potential to exercise market power, resulting in the economic harm known as deadweight loss. But this conventional view does a poor job of explaining the observed actions of regulators and the concerns of airport users. I argue that the primary rationale for regulation of airports is not the minimisation of deadweight loss but the protection and promotion of sunk complementary investments by airport users. This approach explains the key patterns of airport regulation that we observe in practice.

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Appeared or available online: November 2, 2011

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