Airport Privatization and International Competition

Posted by D. Daniel Sokol

Toshihiro Matsumura, University of Tokyo - Institute of Social Science and Noriaki Matsushima, Osaka explore Airport Privatization and International Competition.

ABSTRACT: We provide a simple theoretical model to explain the mechanism whereby privatization of international airports can improve welfare. The model consists of a downstream (airline) duopoly with two inputs (landings at two airports) and two types of consumers. The airline companies compete internationally. Using the simple international duopoly model, we show that the outcome where both airports are privatized is always an equilibrium while that where no airport is privatized is another equilibrium only if the degree of product differentiation is large.