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Congestion pricing, slot sales and slot trading in aviation

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  • Verhoef, Erik T.

Abstract

This paper studies the regulation of an airline duopoly on a congested airport. Regulation should then address two market failures: uninternalized congestion, and overpricing due to market power. We find that first-best charges are differentiated over airlines if asymmetric, and completely drive out the least efficient airline from the market. This is not generally the case for an undifferentiated charge, which is found to be a weighted average of first-best charge rules for the two airlines, and is less-than-optimally efficient because of its inability to differentiate between them. Tradable slots may yield the first-best outcome if the congestion externality is relatively important and the market power distortion relatively unimportant, but may be less efficient than non-intervention when the reverse is true.

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Bibliographic Info

Article provided by Elsevier in its journal Transportation Research Part B: Methodological.

Volume (Year): 44 (2010)
Issue (Month): 3 (March)
Pages: 320-329

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Handle: RePEc:eee:transb:v:44:y:2010:i:3:p:320-329

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Related research

Keywords: Airport congestion Congestion pricing Slot trading Tradable permits Second-best;

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References

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  1. Zhang, Anming & Zhang, Yimin, 2006. "Airport capacity and congestion when carriers have market power," Journal of Urban Economics, Elsevier, vol. 60(2), pages 229-247, September.
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  7. Verhoef Erik T., 1997. "Externalities," Serie Research Memoranda 0031, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
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  11. Jan K. Brueckner & Kurt Van Dender, 2007. "Atomistic Congestion Tolls at Concentrated Airports? Seeking a Unified View in the Internalization Debate," CESifo Working Paper Series 2033, CESifo Group Munich.
  12. James A. Brander & Anming Zhang, 1990. "Market Conduct in the Airline Industry: An Empirical Investigation," RAND Journal of Economics, The RAND Corporation, vol. 21(4), pages 567-583, Winter.
  13. E Verhoef & P Nijkamp & P Rietveld, 1997. "Tradeable permits: their potential in the regulation of road transport externalities," Environment and Planning B: Planning and Design, Pion Ltd, London, vol. 24(4), pages 527-548, July.
  14. Pels, Eric & Verhoef, Erik T., 2004. "The economics of airport congestion pricing," Journal of Urban Economics, Elsevier, vol. 55(2), pages 257-277, March.
  15. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
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Citations

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Cited by:
  1. Pellegrini, Paola & Castelli, Lorenzo & Pesenti, Raffaele, 2012. "Secondary trading of airport slots as a combinatorial exchange," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 48(5), pages 1009-1022.
  2. Brueckner, Jan K. & Verhoef, Erik T., 2010. "Manipulable congestion tolls," Journal of Urban Economics, Elsevier, vol. 67(3), pages 315-321, May.
  3. Lorenzo Castelli & Paola Pellegrini & Raffaele Pesenti, 2010. "Airport slot allocation in Europe: economic efficiency and fairness," Working Papers 197, Department of Applied Mathematics, Università Ca' Foscari Venezia.
  4. Lin, Ming Hsin, 2013. "Airport privatization in congested hub–spoke networks," Transportation Research Part B: Methodological, Elsevier, vol. 54(C), pages 51-67.
  5. Paola Pellegrini & Lorenzo Castelli & Raffaele Pesenti, 2011. "Metaheuristic algorithms for the simultaneous slot allocation problem," Working Papers 9, Department of Management, Università Ca' Foscari Venezia.
  6. Pellegrini, Paola & Rodriguez, Joaquin, 2013. "Single European Sky and Single European Railway Area: A system level analysis of air and rail transportation," Transportation Research Part A: Policy and Practice, Elsevier, vol. 57(C), pages 64-86.
  7. Alessandro Avenali & Tiziana D'Alfonso & Claudio Leporelli & Giorgio Matteucci & Alberto Nastasi & Pierfrancesco Reverberi, 2014. "A supervised market mechanism for efficient airport slot allocation," DIAG Technical Reports 2014-03, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".
  8. Hugo E. Silva & Erik T. Verhoef, 2011. "Optimal Pricing of Flights and Passengers at Congested Airports: The Efficiency of Atomistic Charges," Tinbergen Institute Discussion Papers 11-179/3, Tinbergen Institute, revised 28 Mar 2013.
  9. Silva, Hugo E. & Verhoef, Erik T. & van den Berg, Vincent A.C., 2014. "Airlines’ strategic interactions and airport pricing in a dynamic bottleneck model of congestion," Journal of Urban Economics, Elsevier, vol. 80(C), pages 13-27.
  10. Silva, Hugo E. & Verhoef, Erik T., 2013. "Optimal pricing of flights and passengers at congested airports and the efficiency of atomistic charges," Journal of Public Economics, Elsevier, vol. 106(C), pages 1-13.
  11. Jan K. Brueckner, 2008. "Slot-Based Approaches to Airport Congestion Management," CESifo Working Paper Series 2302, CESifo Group Munich.
  12. Hugo E. Silva & Erik T. Verhoef & Vincent A.C. van den Berg, 2012. "Airlines' Strategic Interactions and Airport Pricing in a Dynamic Bottleneck Model of Congestion," Tinbergen Institute Discussion Papers 12-056/3, Tinbergen Institute, revised 15 Jul 2013.
  13. Barbot, Cristina & Betancor, Ofelia & Socorro, M. Pilar & Viecens, M. Fernanda, 2014. "Trade-offs between environmental regulation and market competition: Airlines, emission trading systems and entry deterrence," Transport Policy, Elsevier, vol. 33(C), pages 65-72.
  14. repec:aeg:report:2014-3 is not listed on IDEAS
  15. Xiao, Yibin & Fu, Xiaowen & Zhang, Anming, 2013. "Demand uncertainty and airport capacity choice," Transportation Research Part B: Methodological, Elsevier, vol. 57(C), pages 91-104.

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