Vertical collusion between airports and airlines: An empirical test for the European case

We develop a test for vertical collusion between airports and airlines in the case of two different scenarios. In the first scenario there is one airport and one airline; this intends to depict the case of airports that do not compete with any other one. In the second, we consider two competing airports and one airline that uses the airport as a base or a hub. In the case of non competing airports we find that gross margins are lower when there is vertical collusion. In the case of competing airports, we find that gross margins are equal when both pairs collude or do not collude. But in the case in which only one pair colludes, a merger between them brings a lower margin. We tested 36 pairs of airports–airlines in the case of non competing airports and we find evidence for vertical collusion with respect to: (i) main national carriers in small airports (ii) low cost carriers in secondary airports.

► Test for vertical collusion based on the evaluation of price–costs margins.
► Two scenarios: one airport–one airline and two airports–two airlines.
► 36 Pairs of airports–airlines in the case of non competing airports are tested.
► Evidence for vertical collusion for main national carriers in small airports.
► Evidence for vertical collusion for low cost carriers in secondary airports.