Spatial asymmetric duopoly with an application to Brussels' airports

Spatial asymmetric duopoly with an application to Brussels' airports

[SHS:GESTION] Humanities and Social Sciences/Business administration

[SHS:ECO] Humanities and Social Sciences/Economies and finances

duopoly

imperfect competition

congestion

general equilibrium

airport competition

In this paper the problem of a city with access to two firms or facilities (shopping malls, airports, commercial districts) selling a differentiated product (shopping, flights) and/or offering a differentiated workplace is studied. Transport connections to one facility are congested. A model is presented for this asymmetric duopoly game that can be solved for a Nash equilibrium in prices and wages. A comparative statics analysis is used to illustrate the properties of the equilibrium. A numerical model is then applied to the two Brussels airports. Three stylised policies are implemented to address the congestion problem: expansion of transport capacity; congestion pricing; and a direct subsidy to the uncongested facility. Our results indicate that the degree of intrinsic differentiation between the two firms is crucial in determining the difference in profit and market share. Price and wage differences also depend on trip frequency and consumer preferences for diversity. Congestion pricing is the most effective policy tool but all three options are shown to have attractive attributes.

Dunkerley, Fay

De Palma, André

Proost, Stef

2008-12

ENG

preprint

http://hal.archives-ouvertes.fr/hal-00348443

http://hal.archives-ouvertes.fr/docs/00/34/84/43/PDF/cahier_de_recherche_2008-18.pdf