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Airlines' Strategic Interactions and Airport Pricing in a Dynamic Bottleneck Model of Congestion

Hugo E. Silva, Erik Verhoef () and Vincent van den Berg
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Hugo E. Silva: VU University Amsterdam

No 12-056/3, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: This discussion paper resulted in a publication in the Journal of Urban Economics , 2014, 13-27. 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 when a Stackelberg leader interacts with a competitive fringe, charging the congestion toll that is derived for fully atomistic carriers to both leader and fringe yields the first-best outcome. This holds regardless of the leader's internalization of congestion in the unregulated equilibrium, and regardless of the assumed demand substitution pattern between firms. This result implies that the financial deficit under optimal pricing may be less severe than what earlier studies suggest. Finally, we show that there are various alternative toll regimes that also induce the welfare maximizing outcome, and therefore widen the set of choices for regulators.

Keywords: Airport pricing; Congestion; Bottleneck model (search for similar items in EconPapers)
JEL-codes: H23 L50 L93 R48 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-tre
Date: 2012-05-25, Revised 2013-07-15
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Journal Article: Airlines’ strategic interactions and airport pricing in a dynamic bottleneck model of congestion (2014) Downloads
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