The Paper challenges the common supposition that (scarcity) rents at Heathrow airport accrue from airlines charging efficient clearing prices and instead suggests that because of oligopolistic practices, much of the rent at Heathrow is quasi-monopoly rent. It also suggests remedies that could be implemented in the short term before more runway capacity is added and that if Heathrow airlines matched the average load-factors of those at London’s other major airport, Gatwick, average fares might be as much as 5 per cent lower.
Delivered as part of ‘In a period of great disturbance and volatility’, Annual Competition and Regulation Conference 2017
Delivered as part of ‘Regulation of markets and networks in the UK: the state of play in a period of economic and political insecurity’, Annual Westminster Conference 2015
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.
The last two decades have witnessed remarkable changes in European aviation, the consequence of a series of inter-related, largely symbiotic developments. These include: airline de-regulation; the use of information technology and the internet; new managerial approaches (product unbundling and differentiation) and the commercialisation of the airport industry. The developments were symbiotic not least because de-regulation encouraged competition and entrepreneurial activity, which in turn stimulated new technology and managerial innovation; substantial increases in productivity leading to a marked fall in the real cost of air travel across a hugely expanded network of services, has been the outcome.
Market definition and market power in the airport sector: competition from outside the relevant market
The purpose of this note is to draw attention to a generally neglected aspect of assessing market power in the supply of airport services. It develops a point made en passant in a paper written by the current author and George Yarrow for the UK CAA in 20101. The paper stressed that, although it was the standard practice in competition assessments to define substitution possibilities from within a defined market, sources of constraint on market power also arose from substitutable products defined to lie outside the relevant market and that it was the cumulative effect of all the substitution possibilities that determined the own-price elasticity of demand for a product or service.
Beesley Lecture series XIX
The CAA has asked us to consider the CC’s draft paper on the Assessment of Competition at Stansted Airport, which differs from the CAA’s own initial thinking to an extent that appears to lie well beyond a normal level of disagreement that might occur when two, independent authorities address a complex factual situation.
2. In what follows we seek to identify and understand the sources of these major differences, with a view to facilitating development of the most appropriate approach to regulation in the specific factual context of Stansted airport.
Comment on Competition Comission report: Stansted Quinquennial review – Assessment of Competition at Stansted Airport
We have been asked by the Civil Aviation Authority to comment on the Competition Commission (CC)`s paper on Assessment of Competition at Stansted Airport (ACP) and on a paper by Dr David Starkie and Professor George Yarrow in response to the CC`s paper. Our comments are on the general approach taken by the CC and by Starkie and Yarrow.
Between July 1995 and January 1996 a series of one-to-one reviews were carried out with all the regulatory bodies, seven investment analysts, five companies each in the electricity and water industries, British Gas (BG), British Telecom (BT and British Airports Authority (BAA). Issues focused on the sources and nature of risk, the cost of capital and other pressing concerns of interviewees. This document provides a summary of the views expressed.