Day: December 1, 2013

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Letters and Notes

Why airports can face price-elastic demand: margins, lumpiness and leveraged passenger losses

The extent to which firms face price-elastic demands for their products is important in the application of competition law and in judgments made as to whether they have significant market power. In the context of the airport industry1, assessing price-elasticities is complicated by the fact that one major type of consumer of airport services, the air passenger, is not charged directly for use of terminals and airside infrastructure2. Instead, the airport derives its revenues from charges to airlines and from the supply of non-aeronautical services. The charges to airlines then become one of many input costs that the airlines recoup from passenger fares, and this intermediation has significant implications for the demand analysis.

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December 1, 2013
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Letters and Notes

The impact of UK shale gas development on gas prices

At the final Beesley lecture of this year’s series, on reducing the costs of lowering carbon emissions, an old chestnut of an economic argument was raised, to the effect that UK shale gas production, even if it starts to happen in the relatively near future, “will not affect UK prices for many years to come because it will not be marginal supply for a long time yet.”
The context here is an interesting one: the main thesis of the lecture was that current policies of providing subsidies to favoured technologies had foreclosing or excluding effect on alternative approaches to decarbonisation, and that part of the exclusionary effect occurred by way of attempts to prevent the development of lines of analysis and reasoning that threatened the privileged policy narratives.

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December 1, 2013

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