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Flores-Fillol, Ricardo and Iozzi, Alberto and Valletti, Tommaso (2018) 'Platform pricing and consumer foresight: The case of airports.' Journal of Economics & Management Strategy, 27 (4). pp. 705-725.

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Abstract

We analyze the optimal behavior of a platform providing essential inputs to downstream firms selling a primary and a second complementary good. Final demand is affected by consumer foresight, that is, consumers may not anticipate the ex post surplus from the secondary good when purchasing the primary good. We first set up a reduced‐form platform model and evaluate the effects of consumer foresight on the platform's optimal decisions. Then, we specialize the analysis in the context of airports, which derive revenues from both aeronautical and, increasingly, commercial activities. An airport sets landing fees and, in addition, it chooses the retail market structure by selecting the number of retail concessions to be awarded. We find that, with perfectly myopic consumers, the airport chooses to attract more passengers via low landing fees, and also sets the minimum possible number of retailers in order to increase the concessions’ revenues. However, even a very small amount of anticipation of the consumer surplus from retail activities changes significantly the airport's choices: the optimal policy is dependent on the degree of differentiation in the retail market. When consumers instead have perfect foresight, the airport establishes a very competitive retail market. This attracts passengers and it is exploited by the airport by charging higher landing fees, which then constitute the largest share of its profits. Overall, the airport's profits are maximal when consumers have perfect foresight.

Item Type: Journal Article
SOAS Departments & Centres: Departments and Subunits > School of Finance & Management
ISSN: 15309134
Copyright Statement: This is the version of the article accepted for publication in Journal of Economics & Management Strategy published by Wiley https://doi.org/10.1111/jems.12253
DOI (Digital Object Identifier): https://doi.org/10.1111/jems.12253
Date Deposited: 22 May 2019 08:20
URI: https://eprints.soas.ac.uk/id/eprint/30539
Related URLs: https://doi.org ... 1111/jems.12253 (Publisher URL)

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