Testing the regulatory model: the expansion of Stansted airport

This paper examines the application of price-cap regulation to the UK airport industry, with particular reference to the expansion of London-Stansted. This expansion is relevant to the debate concerning investment incentives inherent in the RPI-X approach and whether the UK style of regulation encourages the ‘sweating of assets’ at the expense of new investment. Stansted’s expansion also suggests a willingness of the authorities to accept the leveraging of market power in pursuit of perceived public-interest goals; it provides an insight into the behaviour of economic agents when capital market disciplines are mute; and it illustrates some unintended consequences that can follow from market intervention.