Validity of Regulation of Airport Services Fees and Tariffs

Abstract

The article examines the problem of the validity of regulation of airport services’ fees and tariffs. The study is relevant amid criticism of the need for regulation in the context of commercialization of the industry given the disputes over natural monopoly’ status of airports, potential competition between airports and the viability of alternative transaction governance mechanisms. The objective of the research is to analyze possible justifications for the necessity of airport services regulation and to reveal limitations of each of justifications. The analysis is carried out within the framework of two approaches: the natural monopoly model of the theory of industry organization and a comparative analysis of discrete structural alternatives from the new institutional economic theory. The following results were obtained. Firstly, the research shows that the necessity of regulation within the framework of these approaches is justified by the presence of two risks – the risk of abuse of a dominant position and the risk of expropriation of investments made by consumers of airport services. Secondly, concerning the limitations of the justifications, the article systematizes the factors contributing to the strengthening or weakening of the market power of airports. Thirdly, the research identifies the characteristics of airports that are subject to examination when examining the need of for regulation. Fourth, it is demonstrated that the level of risk of expropriation of assets varies depending on the scale of the airport’s activities and the role of the airport in the route networks of airlines. Thus, the paper concludes that within the framework of each of the approaches considered, the decision to introduce regulation of services at airports should be made not for the industry as a whole, but for individual airports, and shows the possible risks of a selective approach to regulating services at airports (the expansion of the regulator’s discretion, the increase in the regulator’s costs due to the need for analysis for the airports under consideration, corruption risks), which must be taken into account when designing relevant regulations if a decision is made to implement the proposed approach to regulation.