Exclusivity in concession revenue sharing contracts

Nerja, Adrian (2021): Exclusivity in concession revenue sharing contracts. Published in: Journal of Air Transport Management , Vol. 99, (March 2022)

Abstract

This paper studies the effects of concession revenue sharing contracts by endogenizing the choice of the signatory airline(s). It is shown that an airport finds it profitable to share concession revenues with airlines and this increases both consumer surplus and social welfare. The airport prefers an exclusive agreement when the net per passenger revenue generated on non-aeronautical services at the airport is sufficiently low; it extracts higher payments by exploiting the competition between airlines to become the sole signatory. The level of aeronautical charges, that are regulated, influences the airport's decision and, consequently, the intensity of airline competition. Welfare is higher under a non-exclusive arrangement, which may be in conflict with the airport's decision. The incentive to use these contracts remains under airport competition and revenue sharing increases. With an airline alliance, revenue sharing increases traffic for a large enough degree of cooperation between airlines.

• Item Type: MPRA Paper
• Language: English
• Keywords: Airlines competition; Airport-airline relationship; Vertical collusion; Vertical cooperation; Concession revenue sharing contracts; Vertical contracts
• Subjects: L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L12 - Monopoly ; Monopolization Strategies; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L14 - Transactional Relationships ; Contracts and Reputation ; Networks; L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L93 - Air Transportation; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R4 - Transportation Economics > R40 - General

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