Platform Competition and Consumer Myopia : The Case of Airports

This paper studies the effect of competition and consumer myopia on platform profits. The focus is on airports, which provide passengers with aeronautical and commercial services through airlines and retailers. Our results can be summarized as follows. First, we unravel the relationship between consumer myopia and the optimal pricing of the two services. When passengers are myopic, the airport charges low landing fees and makes profits from the retail business. As the degree of myopia decreases, consumers value more the retail product and the airport changes its strategy by charging higher landing fees and allowing for a more competitive environment on the retail side. Second, we find that the relationship between profits and consumer myopia strictly depends on the considered market structure. When the airport has no competitors, airport profits are non-decreasing in the degree of consumer foresight. By contrast, under duopoly competition, a weakly-negative correlation between airport profits and consumer foresight is observed. These results allow to derive two main managerial implications. First, airport competition can lead to higher landing fees. Second, under competition, an airport is not necessarily interested in informing passengers about its retail facilities