Airport complementarity: Private vs. government ownership and welfare gravitation

We study the effects of airport ownership (private vs. government) on welfare in the presence of airport complementarity, where each airport is located in a different country. Considering Cournot competition in the airline market, the unique Nash equilibrium is such that the two countries privatize their airports, even though both countries are better off, from a welfare perspective, with public (government-owned) airports. Considering a differentiated Bertrand competition in the airline market, the same result prevails if the cross price elasticities are sufficiently high, otherwise the symmetric government-ownership of airports may also be a Nash equilibrium.

► Public vs. private ownership of airports in the presence of airport complementarity.
► Both Cournot competition and differentiated Bertrand competition are considered.
► Privatizing an airport could be welfare improving.
► In most cases, privatization of the two airports is the unique Nash equilibrium.
► Both countries are better off in terms of welfare, with publicly owned airports.