Vertical Relationships at Airports: Impact on Retail Sales and Rent Revenue to an Airport

Abstract: In this paper we discuss vertical relationships between airports and retailers in terms of their potential pro- and anti-competitive effects. To distinguish those effects, we look at the impact of vertical relationships (captured under concession management approaches) on retail sales and rent revenues to an airport at US American airports during 2004-2008. In our analysis we estimate sales and rent revenue equations for food&beverage, specialty retail and news&gifts retail areas. According to our preliminary results, we find that as compared to the direct operation of retail concessions by an airport, a private developer, a management company, or multiple prime operators (that appear to foster retail competition) lead to higher consumer consumption (approximated by retail sales per passenger). These approaches may also benefit a retailer (since it gets higher retail sales). A combination of different concession management approaches ("hybrid structure") appears to be less productive than the direct operation of concessions by an airport. While leasing the retail space to multiple prime operators, the aiport appears to get more rent revenue than in case of direct operation.