Rivalry between airport ancillary and city-center supplies

Abstract

Passengers can buy souvenirs or rent a car at the airport or in the city-center. This paper develops a basic model with unit demands for airport ancillary and city-center demands to derive equilibrium pricing strategies of profit-maximizing airports and city-center companies and evaluates them from the social viewpoint. Passengers are myopic in the sense that only ticket prices matter for flight decisions or foresighted in the sense that non-aeronautical airport and city-center supplies matter for flight decisions, too. We find that the welfare evaluation of equilibrium airport pricing behavior can be independent of whether passengers are myopic or foresighted.