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Congestion and Market Structure in the Airline Industry

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    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;

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    File URL: http://www.netinst.org/Ater_07-28.pdf
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    Bibliographic Info

    Paper provided by NET Institute in its series Working Papers with number 07-28.

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    Length: 42 pages
    Date of creation: Sep 2007
    Date of revision: Sep 2007
    Handle: RePEc:net:wpaper:0728

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    Web page: http://www.NETinst.org/

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    Keywords: Congestion; Air Transportation;

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