The impact of regulatory exemptions on price equilibrium in the U.S. air transportation market

Because U.S. public airports must balance social welfare objectives with financial sustainability, aeronautical pricing decisions play a central strategic role. The regulatory exemptions, notably those granted to grandfathered airports, may inadvertently prioritize specific segments, leading to anti-competitive behavior and price deviation. The ongoing debate surrounding the potential repeal of grandfather exemptions underscores the complex legal and financial implications. To delve into the impact of this exemption, we employed a spatial pricing frontier model. The results reveal a consistent industry-wide pattern, with an observed average overcharge of 9.9%. This finding serves as a revealing indicator of a systematic trend driven by underlying factors elucidated in this study. Grandfathered airports strategically engage in overcharging practices to generate a revenue surplus. Overall, the results suggest a reevaluation of grandfather exemptions and a balance between revenue generation and consumer welfare.