ON CONCESSION AND CONGESTION IN TWO-SIDED AIRPORT MARKETS

In this work we model airports as two-sided markets and investigate the emerging tradeoff between the airport's concession revenue and aeronautical revenue the airport's two complementary services. While congestion could stimulate commercial revenue, it may harm demand for flights: passengers' full price is composed of the airfare and the delay due to congestion. If passengers have low valuation for the concession good, opportunity for concession revenue is small and the airport keeps charging a strictly positive landing fee. With a sufficiently large valuation, the airport lowers the landing charge to bring in more passengers [at a loss] in order to make money on concession. This benefits both the airport [concessions revenue] and the airlines [negative landing fees and airfares, even though both demand and airfare may decrease]. Thus, we observe how the two-sided platform airport is internalizing the externality between passenger concession demand and airline demand for airport services.