Airport’s Profit Sharing: Effects on Investment Incentives, Competition and Social Welfare

Abstract

The aim of this paper is to investigate the effects of airport’s profit sharing on the incentives to invest, market competition and social welfare. The analysis is developed under two frameworks, one with a single airport and one with two competing airports, and both with airline competition. We conclude that airport’s profit sharing may display the highest incentive to invest when compared to alternative vertical relations. Also, we found that airport’s profit sharing excludes the independent airline, as long as the profit airport participation is not below 60%. Moreover, airport’s profit sharing does not allow the elimination of double marginalization and thus the effects on social welfare are ambiguous.