Airport cities and multiproduct pricing

Abstract

We study pricing of aviation and non-aviation products in a private monopolistic airport city and model two features. First, non-aviation goods are demanded by both air travellers and non-travellers. Second, the utility from consuming non-aviation goods may depend on whether the consumer travels or not. The impacts of these features on optimal aviation and non-aviation charges would depend on whether individuals foresee the utility of non-aviation goods or not while deciding to buy air tickets. It is profit maximising and welfare enhancing to manipulate the non-aviation product mix in a way that raises the extra surplus gained by travellers.