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The Economics of Airport Congestion Pricing

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  • Eric Pels

    () (Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam)

  • Erik Verhoef

    () (Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam)

Abstract

Conventional economic wisdom suggests that congestion pricing would be an appropriate response to cope with the growing congestion levels currently experienced at many airports. Several characteristics of aviation markets, however, may make naive congestion prices equal to the value of marginal travel delays a non-optimal response. This paper develops a model of airport pricing that captures a number of these features. The model in particular reflects (1) that airlines typically have market power and are engaged in oligopolistic competition at different sub-markets; (2) that part of external travel delays that aircraft impose are internal to an operator and hence should not be accounted for in congestion tolls; and (3) that different airports in an international network will typically not be regulated by the same authority. We present an analytical treatment for a simple two-node network and some numerical results to illustrate our findings. Some main conclusions are that second-best optimal tolls are typically lower than what would be suggested by congestion costs alone and may even be negative, and that cooperation between regulators need not be stable but that non-cooperation may lead to welfare losses also when compared to a no-tolling situation.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 03-083/3.

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Date of creation: 14 Oct 2003
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Handle: RePEc:dgr:uvatin:20030083

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Related research

Keywords: congestion; market power; networks; airports; airlines;

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References

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  1. Daniel, Joseph I, 1995. "Congestion Pricing and Capacity of Large Hub Airports: A Bottleneck Model with Stochastic Queues," Econometrica, Econometric Society, vol. 63(2), pages 327-70, March.
  2. Brueckner, Jan K., 2001. "The economics of international codesharing: an analysis of airline alliances," International Journal of Industrial Organization, Elsevier, vol. 19(10), pages 1475-1498, December.
  3. Pels, Eric & Nijkamp, Peter & Rietveld, Piet, 2000. "A note on the optimality of airline networks," Economics Letters, Elsevier, vol. 69(3), pages 429-434, December.
  4. Carlin, Alan & Park, Rolla Edward, 1970. "Marginal Cost Pricing of Airport Runway Capacity," American Economic Review, American Economic Association, vol. 60(3), pages 310-19, June.
  5. 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.
  6. Martijn Brons & Eric Pels & Peter Nijkamp & Piet Rietveld, 2001. "Price Elasticities of Demand for Passenger Air Travel," Tinbergen Institute Discussion Papers 01-047/3, Tinbergen Institute.
  7. Brueckner, Jan K & Spiller, Pablo T, 1994. "Economies of Traffic Density in the Deregulated Airline Industry," Journal of Law and Economics, University of Chicago Press, vol. 37(2), pages 379-415, October.
  8. Oum, Tae Hoon & Zhang, Yimin, 1990. "Airport pricing : Congestion tolls, lumpy investment, and cost recovery," Journal of Public Economics, Elsevier, vol. 43(3), pages 353-374, December.
  9. Daniel, Joseph I., 2001. "Distributional Consequences of Airport Congestion Pricing," Journal of Urban Economics, Elsevier, vol. 50(2), pages 230-258, September.
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