Airport Marginal Cost Pricing: Discussion and an Application to Swedish Airports

We derive an optimal airport-pricing model, both with and without a constraint on the revenues, that includes all relevant external marginal costs,. Given the results of the model we discuss the implications on the profit of airports, and find that given that the proceeds of the environmental charges are seen as revenue for the airport, it is not obvious that a marginal cost-pricing scheme would result in financial deficits for the airports, this despite the reasonable assumption of increasing returns to scale in airport capacity. Using relatively crude estimates of the marginal costs, we compare the current pricing scheme with a marginal cost pricing scheme. We find that the effect on revenues of moving towards a marginal cost pricing scheme may not be so dramatic; especially not if the marginal external costs include estimated marginal costs of CO2 emissions. <p>