Market power, competition and post-privatization regulation: Evidence from changes in regulation of European airports

This paper conducts an empirical analysis of the relationship between privatization, competition, and regulation drawing on data from a wide sample of European airports. Privatization policies may involve a shift in the way governments are able to intervene in markets, while airports – unlike network infrastructures – are subject to mixed degrees of competition and monopoly characteristics. In this regard, our main hypothesis is that the impact of privatization on regulatory reform will be dependent on the competition scenario that prevails in each airport. We provide empirical evidence that the stringency of regulatory reform is related to the level of existing competition. Large airports, with substantial market power, tend to be subject to highly prescriptive regulation and airports that have nearby competing airports tend to be subject to less prescriptive regulation.