Article ID: | iaor19962143 |
Country: | United States |
Volume: | 30B |
Issue: | 1 |
Start Page Number: | 11 |
End Page Number: | 18 |
Publication Date: | Feb 1996 |
Journal: | Transportation Research. Part B: Methodological |
Authors: | Oum Tae Hoon, Zhang Anming, Zhang Yimin |
Keywords: | financial |
This paper deals with the socially optimal pricing of airports in a hub-and-spoke network, taking into account explicitly the fact that demands for airport services at hub airport and spoke airports are complementary. It is shown that a welfare gain is to be made by switching from the regime of pricing each airport independently of other airports in the network to the regime of pricing the hub and spoke airports jointly. Intuitively, given the demand complementarity, the optimal pricing of a hub-and-spoke airport network as a system may require for the hub airport to subsidize the money-losing spoke airports. The present result implies tht there may be a welfare loss due to the reduction in allocation efficiency if a network of airports currently being managed by a national government are to be defederalized (or privatized) separately for each airport as being carried out in Canada and in Australia. Since one of the major reasons for defederalization (or privitization) of airports is to reduce