In: Airports: Performance, Risks, and Problems ISBN: 978-1-60692-393-1 Editors: P. B. Larauge and M. E. Castille, pp. © 2009 Nova Science Publishers, Inc. Short Communications 1 DOES AIRLINE MARKET POWER AFFECT AIRPORT PERFORMANCE? Carlos F. Alves 1 and Cristina Barbot 2, 1 CEMPRE, Faculdade de Economia, Universidade do Porto 2 CETE, Faculdade de Economia, Universidade do Porto Rua Dr. Roberto Frias, 4200-464 Porto, Portugal Abstract In this paper, we first build a model that shows that a monopolist supplier’s profits depend negatively on the market power in the buyers’ industry. The model depicts an input market with Stackelberg competition and a market leader amongst buyers but with only one seller. We then proceed with an empirical study for airport and airline industries, and with the theoretical model we consistently get evidence that airports’ financial performance depends negatively on the market power in the airline industry. Thus we conclude that airlines are able to extract rents from airports when they have a large market share. I. Introduction The effect of market power on the seller's side in market structure and performance has become a standard theme in Industrial Organisation literature. Conversely, the effect of the market power of buyers has been analysed mainly in the extreme cases of monopsony and bilateral monopoly. Even the case of bilateral monopoly still only has two main literature contributions: the Nash bargaining solution (Nash, 1950) and Bowley (1928)’s model. But intermediate cases of a small number of buyers and sellers, or - in a broader context - of market power on both sides, have been scarcely dealt with. Among the few exceptions that have analysed this case, it is worth mentioning Horn and Wolinsky (1988), who apply the Nash bargaining solution to the case of two buyers and two sellers. This study aims to contribute to fill this gap.  Email address: cbarbot@fep.up.pt; Telephone: + 351 225 571 100; Fax: + 351 225 505 050