Vertical Contracts between Airports and Airlines<BR> Is there a Trade-off between Welfare and Competitiveness?

Airports and airlines have been increasingly establishing vertical contracts, with important implications for policy issues, namely for regulation and price discrimination legislation. In this paper, we develop a model that analyses the effects of three types of vertical contract, regarding welfare, pro-competitiveness and the scope for regulation. We find that two types of contract are anti-competitive, and that in all of them consumers are better off, though within some conditions. We also conclude that regulation may improve welfare, depending on the type of contract, and that price capping has different effects according to the facility which has its price capped. © 2011 LSE and the University of Bath