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How do slot restrictions affect airfares? New evidence from the US airline industry

Hideki Fukui

Economics of Transportation, 2019, vol. 17, issue C, 51-71

Abstract: This paper examines the impact of slot restrictions as a determinant of scarcity rent. I took advantage of an exogenous regulatory change: the removal of slots at Newark Airport in October 2016. The results from the difference-in-differences estimation with and without propensity score matching or weighting methods suggest that after the slot removal at Newark Airport, the average fare on routes to or from Newark decreased by about 2.5–2.6% in comparison to the average fare on routes to or from the two other slot-controlled New York-area airports. The estimation results from modified models suggest that the key driver lowering airfares on routes to or from Newark after the slot elimination was carriers other than the dominant carrier at Newark, though even the dominant carrier, United Airlines, appears to be making price cuts to counteract other carriers’ aggressive price reductions on competitive routes. Overall, the estimation results suggest that slot restrictions limit the effect of competition on airfare.

Keywords: Airport slots; Entry barriers; Price competition; Propensity score analysis (search for similar items in EconPapers)
JEL-codes: L39 L43 R41 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.ecotra.2019.01.001

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Handle: RePEc:eee:ecotra:v:17:y:2019:i:c:p:51-71