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Platform competition and consumer foresight: The case of airports

  • Identification data

    Identifier: imarina:9248641
    Handle: https://hdl.handle.net/20.500.11797/imarina9248641
    Authors:
    D'Amico G
    Abstract:
    This paper studies the effect of competition and consumer foresight on platform profits. The focus is on airports, which provide passengers with aeronautical and commercial services through airlines and retailers. Our results can be summarized as follows. First, we unravel the relationship between consumer foresight and the optimal pricing of the two services. When passengers are myopic, they undervalue the surplus they derive from the retail services, so that the airport charges low landing fees and makes profits from the retail business. When passengers are foresighted, they better anticipate the surplus from the retail services, so that the airport changes its strategy by charging higher landing fees and boosting competition in the retail sector. Second, we find that the relationship between profits and consumer foresight strictly depends on the considered market structure. When the airport has no competitors, airport profits are non-decreasing in the degree of consumer foresight. By contrast, under duopoly competition, a weakly-negative correlation between airport profits and consumer foresight is observed. These results allow to derive two main managerial implications. First, airport competition can lead to higher landing fees. Second, under competition, an airport is not necessarily interested in informing passengers about its retail facilities. However, an extension where airports decide whether to set an advertising campaign to inform passengers about their retail facilities reveals that they end up locked in a Prisoner’s Dilemma. Keywords: Airports; Two-sided markets; Pricing strategy

  • Others:

    Author, as appears in the article.: D'Amico G
    Papper version: info:eu-repo/semantics/publishedVersion
    Department: Economia
    Papper original source: Giuseppe D’Amico, Platform competition and consumer foresight: The case of airports, Economics of Transportation, Volume 29, 2022, 100248, ISSN 2212-0122,
    Licence document URL: https://repositori.urv.cat/ca/proteccio-de-dades/
    URV's Author/s: D'AMICO , GIUSEPPE
    Abstract: This paper studies the effect of competition and consumer foresight on platform profits. The focus is on airports, which provide passengers with aeronautical and commercial services through airlines and retailers. Our results can be summarized as follows. First, we unravel the relationship between consumer foresight and the optimal pricing of the two services. When passengers are myopic, they undervalue the surplus they derive from the retail services, so that the airport charges low landing fees and makes profits from the retail business. When passengers are foresighted, they better anticipate the surplus from the retail services, so that the airport changes its strategy by charging higher landing fees and boosting competition in the retail sector. Second, we find that the relationship between profits and consumer foresight strictly depends on the considered market structure. When the airport has no competitors, airport profits are non-decreasing in the degree of consumer foresight. By contrast, under duopoly competition, a weakly-negative correlation between airport profits and consumer foresight is observed. These results allow to derive two main managerial implications. First, airport competition can lead to higher landing fees. Second, under competition, an airport is not necessarily interested in informing passengers about its retail facilities. However, an extension where airports decide whether to set an advertising campaign to inform passengers about their retail facilities reveals that they end up locked in a Prisoner’s Dilemma. Keywords: Airports; Two-sided markets; Pricing strategy
    Journal publication year: 2022
    licence for use: https://creativecommons.org/licenses/by/3.0/es/
    Record's date: 30/03/2022