The competitive structure of British airports with reference to BAA Essay

The competitive structure of British airports with reference to BAA - Essay Example More particularly, the Competition Commission has made are geared its findings towards making the BAA to be more competitive. Background BAA was privatized in 1980. This was in response to proposals by the Governments Review of Economic Regulations that sought to bring changes to operations of UK Civil Aviation Authority. Furthermore, the proposed amendments have been for the sake of widening the scope of competition at the airport as well as making the ground be more even. In the recent past, due to these proposals, the sector has seen major changes in terms of structure and becoming more flexible to respond to market demands and competition. Competition has also been necessitated by BAA’s disposal of Gatwick airport to Global Infrastructure Partners. Besides, there is a wider legal framework that is being applied in all other sectors to encourage free hand in business. For instance, the Competition Act 1998, Utilities Act of 2000 and the Communications Act of 2003 have creat ed a platform that promotes fair competition.. This has further gone a long way to diminish its share of passengers and airlines in the South East. To make the market perform optimally, there is more need for BAA to divest some of its holding in other air business corporations so as to completely free up the market. Nevertheless, the future of airports business is likely to be better due to the changing market environment (Doganis, 1992). The present competitive structure of British airports Since the process of liberalization of the air industry gained progress, the sector has witnessed tremendous rise in domestic flights as well as demand for flights for European and intercontinental routes. Despite this space of freedom, there still exists some of form of regulation. Therefore, it is of paramount importance to establish the level of competition that truly exists as well as explore the precise consequences to the current and future air market. Types of markets Theoretically, there are three types of market as far as competition is concerned. Firstly, there is monopoly. This is one of the oldest forms of market where there is only one seller or buyer who has power to control the prices of commodities. In this market, he is the price setter and shall invariably do that to his advantage. This market is characterized by a number of imperfections that typically result in to negative social costs to consumers. It is also a common feature for traders in this market to report abnormal profits. Due to liberalization, in UK there is a limited number of industries that have monopolistic tendencies. According to Competitions Commission, there is need for economic regulation in such conditions so as to reduce the economic excesses that result from monopoly. Secondly, there is an oligopolistic market, that is a market that is controlled by a few market players (sellers or buyers), who habitually, agree on the price to charge for their goods and services. Just like monopol y, this market system can be quite oppressive. The British airports market can aptly fall under this category. Scholars and policy formulators do converge to a verity that in this condition, there is need for regulator intervention to make the ground fairer. Finally, there is a perfect competition that, incidentally, has dominated the majority of UK