Market power and the need for regulation in the German airport market

Malina Robert

Abstract
With the increasing profit orientation of German airport operators the question as to whetherthey possess market power is gaining more importance. Whereas there have been somestudies about the degree of market power of individual airports in countries such as Australiaand Great Britain, the German airport market has not yet been studied in detail. This paper ispart of a research project that tries to assess market power in this market. It indicates which ofthe 35 examined German airports possess market power and therefore need special regulatoryattendance. We calculate a substitution coefficient for inter-airport competition that quantifiesthe quality of the best substitute for a certain airport. It is defined as the proportion ofinhabitants within the relevant regional market of an airport that consider another airport,which has been identified as meeting the demands of the airlines, to be a good substitute fromtheir perspective as well. The analysis is complemented by an assessment of intermodalsubstitution and countervailing power of airlines. The study gives strong indication that 23 outof the 35 German airports do not possess relevant market power. In contrast to this, fourairports (HAM, FRA, MUC, STR) and Berlin Airport System (THF, TXL, SXF) have strong,five (BRE, DRS, LEJ, NUE, HAJ) have modest market power. These results provide a basisfor the construction of an efficient regulatory framework for the German airport market.

Keywords
airport competition; countervailing power; market power; substitution