Airlines’ strategic interactions and airport pricing in a dynamic bottleneck model of congestion

This paper analyzes efficient pricing at a congested airport dominated by a single firm. Unlike much of the previous literature, we combine a dynamic bottleneck model of congestion and a vertical structure model that explicitly considers the role of airlines and passengers. We show that a Stackelber...

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Bibliographic Details
Published in:Journal of urban economics 2014-03, Vol.80, p.13-27
Main Authors: Silva, Hugo E., Verhoef, Erik T., van den Berg, Vincent A.C.
Format: Article
Language:English
Subjects:
Airport pricing
Airports
Bottleneck model
Bottlenecks
Competitive firms
Congestion
Economics
Literature
Passengers
Pricing policies
Regulatory policy
Studies
Term structure
Welfare
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Summary:This paper analyzes efficient pricing at a congested airport dominated by a single firm. Unlike much of the previous literature, we combine a dynamic bottleneck model of congestion and a vertical structure model that explicitly considers the role of airlines and passengers. We show that a Stackelberg leader interacting with a competitive fringe partially internalizes congestion, and that there are various toll regimes that induce the welfare maximizing outcome, widening the set of choices for regulators. In particular, charging the congestion toll that would apply for fully competitive carriers and that ignores any internalization, to both the leader and the fringe, yields the first-best outcome.
ISSN:0094-1190
1095-9068
DOI:10.1016/j.jue.2013.08.002