IDEAS home Printed from https://ideas.repec.org/a/eee/juecon/v80y2014icp13-27.html
   My bibliography  Save this article

Airlines’ strategic interactions and airport pricing in a dynamic bottleneck model of congestion

Author

Listed:
  • Silva, Hugo E.
  • Verhoef, Erik T.
  • van den Berg, Vincent A.C.

Abstract

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 a Stackelberg leader interacting with a competitive fringe partially internalizes congestion, and that there are various toll regimes that induce the welfare maximizing outcome, widening the set of choices for regulators. In particular, charging the congestion toll that would apply for fully competitive carriers and that ignores any internalization, to both the leader and the fringe, yields the first-best outcome.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:juecon:v:80:y:2014:i:c:p:13-27
    DOI: 10.1016/j.jue.2013.08.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0094119013000594
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Lijesen, Mark G., 2006. "A mixed logit based valuation of frequency in civil aviation from SP-data," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 42(2), pages 82-94, March.
    2. Basso, Leonardo J. & Zhang, Anming, 2010. "Pricing vs. slot policies when airport profits matter," Transportation Research Part B: Methodological, Elsevier, vol. 44(3), pages 381-391, March.
    3. Pels, Eric & Verhoef, Erik T., 2004. "The economics of airport congestion pricing," Journal of Urban Economics, Elsevier, vol. 55(2), pages 257-277, March.
    4. van den Berg, Vincent & Verhoef, Erik T., 2011. "Winning or losing from dynamic bottleneck congestion pricing?: The distributional effects of road pricing with heterogeneity in values of time and schedule delay," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 983-992, August.
    5. Brueckner, Jan K., 2005. "Internalization of airport congestion: A network analysis," International Journal of Industrial Organization, Elsevier, vol. 23(7-8), pages 599-614, September.
    6. Brueckner, Jan K. & Van Dender, Kurt, 2008. "Atomistic congestion tolls at concentrated airports? Seeking a unified view in the internalization debate," Journal of Urban Economics, Elsevier, vol. 64(2), pages 288-295, September.
    7. Arnott, Richard & de Palma, Andre & Lindsey, Robin, 1990. "Economics of a bottleneck," Journal of Urban Economics, Elsevier, vol. 27(1), pages 111-130, January.
    8. Verhoef, Erik T., 2010. "Congestion pricing, slot sales and slot trading in aviation," Transportation Research Part B: Methodological, Elsevier, vol. 44(3), pages 320-329, March.
    9. Avinash Dixit, 1979. "A Model of Duopoly Suggesting a Theory of Entry Barriers," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 20-32, Spring.
    10. Brueckner, Jan K. & Girvin, Raquel, 2008. "Airport noise regulation, airline service quality, and social welfare," Transportation Research Part B: Methodological, Elsevier, vol. 42(1), pages 19-37, January.
    11. 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 327-370, March.
    12. Santos, Georgina & Robin, Maël, 2010. "Determinants of delays at European airports," Transportation Research Part B: Methodological, Elsevier, vol. 44(3), pages 392-403, March.
    13. Forbes, Silke J., 2008. "The effect of air traffic delays on airline prices," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1218-1232, September.
    14. Brueckner, Jan K. & Verhoef, Erik T., 2010. "Manipulable congestion tolls," Journal of Urban Economics, Elsevier, vol. 67(3), pages 315-321, May.
    15. Rupp, Nicholas G., 2009. "Do carriers internalize congestion costs? Empirical evidence on the internalization question," Journal of Urban Economics, Elsevier, vol. 65(1), pages 24-37, January.
    16. Vickrey, William S, 1969. "Congestion Theory and Transport Investment," American Economic Review, American Economic Association, vol. 59(2), pages 251-260, May.
    17. van den Berg, Vincent A.C., 2012. "Step-tolling with price-sensitive demand: Why more steps in the toll make the consumer better off," Transportation Research Part A: Policy and Practice, Elsevier, vol. 46(10), pages 1608-1622.
    18. Small, Kenneth A, 1982. "The Scheduling of Consumer Activities: Work Trips," American Economic Review, American Economic Association, vol. 72(3), pages 467-479, June.
    19. Levine, Michael E, 1969. "Landing Fees and the Airport Congestion Problem," Journal of Law and Economics, University of Chicago Press, vol. 12(1), pages 79-108, April.
    20. Jorge, José-Doramas & de Rus, Ginés, 2004. "Cost–benefit analysis of investments in airport infrastructure:a practical approach," Journal of Air Transport Management, Elsevier, vol. 10(5), pages 311-326.
    21. Brueckner, Jan K., 2009. "Price vs. quantity-based approaches to airport congestion management," Journal of Public Economics, Elsevier, vol. 93(5-6), pages 681-690, June.
    22. Basso, Leonardo J. & Zhang, Anming, 2007. "Congestible facility rivalry in vertical structures," Journal of Urban Economics, Elsevier, vol. 61(2), pages 218-237, March.
    23. Jan K. Brueckner, 2002. "Airport Congestion When Carriers Have Market Power," American Economic Review, American Economic Association, vol. 92(5), pages 1357-1375, December.
    24. Jan K. Brueckner, 2004. "Network Structure and Airline Scheduling," Journal of Industrial Economics, Wiley Blackwell, vol. 52(2), pages 291-312, June.
    25. Daniel, Joseph I. & Harback, Katherine Thomas, 2008. "(When) Do hub airlines internalize their self-imposed congestion delays?," Journal of Urban Economics, Elsevier, vol. 63(2), pages 583-612, March.
    26. Daniel, Joseph I. & Harback, Katherine Thomas, 2009. "Pricing the major US hub airports," Journal of Urban Economics, Elsevier, vol. 66(1), pages 33-56, July.
    27. Carlin, Alan & Park, Rolla Edward, 1970. "Marginal Cost Pricing of Airport Runway Capacity," American Economic Review, American Economic Association, vol. 60(3), pages 310-319, June.
    28. 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.
    29. Arnott, Richard & de Palma, Andre & Lindsey, Robin, 1993. "A Structural Model of Peak-Period Congestion: A Traffic Bottleneck with Elastic Demand," American Economic Review, American Economic Association, vol. 83(1), pages 161-179, March.
    30. Tae Hoon Oum & Anming Zhang & Yimin Zhang, 1995. "Airline Network Rivalry," Canadian Journal of Economics, Canadian Economics Association, vol. 28(4a), pages 836-857, November.
    31. Daniel, Joseph I., 2001. "Distributional Consequences of Airport Congestion Pricing," Journal of Urban Economics, Elsevier, vol. 50(2), pages 230-258, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Small, Kenneth A., 2015. "The bottleneck model: An assessment and interpretation," Economics of Transportation, Elsevier, vol. 4(1), pages 110-117.
    2. Hugo Emilio Silva & Robin Lindsey & André de Palma & Vincent A.C. van den Berg, 2014. "On the Existence and Uniqueness of Equilibrium in the Bottleneck Model with Atomic Users," Tinbergen Institute Discussion Papers 14-077/VIII, Tinbergen Institute.
    3. Jiang, Changmin & Zhang, Anming, 2015. "Airport congestion pricing and terminal investment: Effects of terminal congestion, passenger types, and concessionsAuthor-Name: Wan, Yulai," Transportation Research Part B: Methodological, Elsevier, vol. 82(C), pages 91-113.
    4. Czerny, Achim I. & Zhang, Anming, 2014. "Airport peak-load pricing revisited: The case of peak and uniform tolls," Economics of Transportation, Elsevier, vol. 3(1), pages 90-101.
    5. Kenneth Small, 2015. "The Bottleneck Model: An Assessment and Interpretation," Working Papers 141506, University of California-Irvine, Department of Economics.
    6. repec:eee:transb:v:105:y:2017:i:c:p:174-192 is not listed on IDEAS
    7. repec:eee:juecon:v:101:y:2017:i:c:p:45-56 is not listed on IDEAS
    8. Erik T. Verhoef & Hugo E. Silva, 2015. "Dynamic Equilibrium at a Congestible Facility under Market Power," Tinbergen Institute Discussion Papers 15-045/VIII, Tinbergen Institute.

    More about this item

    Keywords

    Airport pricing; Congestion; Bottleneck model;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:juecon:v:80:y:2014:i:c:p:13-27. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/inca/622905 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.