Congestion and Market Structure in the Airline Industry

Itai Ater ()
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Itai Ater: Stanford University, Economics Department, http://www.stanford.edu/~itaiater

No 07-28, Working Papers from NET Institute

Abstract: Empirical research on the relationship between market congestion and the market competitive level largely falsifies the positive relationship predicted by theoretical models. In this paper, I exploit the airline industry network structure and focus on the level of congestion during periods in which passengers cross-connect to their final destinations. About 70% of hub airport flights depart or land during these periods. The empirical analysis establishes a strong positive relationship. Furthermore, based on a simple theoretical model, I am able to quantify the potential time savings from eliminating congestion externalities and find that, on average, a flight can save 2 minutes of flight time at its departing airport and another 1.5 minutes at its destination airport. I also find that airlines choose to pad their schedule particularly on competitive routes, presumably to attract uninformed passengers. JEL classification: L93; R41;

Keywords: Congestion; Air Transportation (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-ind, nep-net and nep-ure
Date: Written 2007-09

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