Concession revenue and optimal airport pricing

Concession revenue and optimal airport pricing

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Article ID: iaor1999788
Country: United Kingdom
Volume: 33E
Issue: 4
Start Page Number: 287
End Page Number: 296
Publication Date: Dec 1997
Journal: Transportation Research. Part E, Logistics and Transportation Review
Authors: ,
Keywords: financial
Abstract:

In recent years airports have been under growing pressure to become financially self-sufficient and to pursue profit maximization in their non-aeronautical or concession operations. In this paper we examine the optimal pricing in a model where concession and aeronautical operations of an airport are considered together with an overall break-even constraint. We find that the optimum solution may require a subsidy from concession to aeronautical operations. However, such a cross-subsidy may or may not restore marginal-cost pricing on aeronautical operations. On the other hand, social welfare can be higher when an airport is allowed to make profits in concession operations than when marginal-cost pricing is imposed on concession operations.

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