IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/8701.html
   My bibliography  Save this paper

Network Effects, Congestion Externalities, and Air Traffic Delays: Or Why All Delays Are Not Evil

Author

Listed:
  • Christopher Mayer
  • Todd Sinai

Abstract

We examine two factors that might explain the extent of air traffic delays in the United States: network benefits due to hubbing and congestion externalities. Airline hubs enable passengers to cross-connect to many destinations, thus creating network benefits that increase in the number of markets served from the hub. Delays are the equilibrium outcome of a hub airline equating high marginal benefits from hubbing with the marginal cost of delays. Congestion externalities are created when airlines do not consider that adding flights may lead to increased delays for other air carriers. In this case, delays represent a market failure. Using data on all domestic flights by major US carriers from 1988-2000, we find that delays are increasing in hubbing activity at an airport and decreasing in market concentration but the hubbing effect dominates empirically. In addition, most delays due to hubbing actually accrue to the hub carrier, primarily because the hub carrier clusters its flights in short spans of time in order to maximize passenger interconnections. Non hub flights at hub airports operate with minimal additional travel time by avoiding the congested peak connecting times of the hub carrier. These results suggest that an optimal congestion tax would have a relatively small impact on air traffic delays since hub carriers already internalize most of the costs of hubbing and a tax that did not take the network benefits of hubbing into account could reduce social welfare.

Suggested Citation

  • Christopher Mayer & Todd Sinai, 2002. "Network Effects, Congestion Externalities, and Air Traffic Delays: Or Why All Delays Are Not Evil," NBER Working Papers 8701, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:8701
    Note: PE
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w8701.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Borenstein, Severin & Netz, Janet, 1999. "Why do all the flights leave at 8 am?: Competition and departure-time differentiation in airline markets," International Journal of Industrial Organization, Elsevier, vol. 17(5), pages 611-640, July.
    2. Severin Borenstein, 1992. "The Evolution of U.S. Airline Competition," Journal of Economic Perspectives, American Economic Association, vol. 6(2), pages 45-73, Spring.
    3. Garth Saloner & Andrea Shepard, 1995. "Adoption of Technologies with Network Effects: An Empirical Examination of the Adoption of Teller Machines," RAND Journal of Economics, The RAND Corporation, vol. 26(3), pages 479-501, Autumn.
    4. Jan K. Brueckner & Nichola J. Dyer & Pablo T. Spiller, 1992. "Fare Determination in Airline Hub-and-Spoke Networks," RAND Journal of Economics, The RAND Corporation, vol. 23(3), pages 309-333, Autumn.
    5. Arnott, Richard J., 1979. "Unpriced transport congestion," Journal of Economic Theory, Elsevier, vol. 21(2), pages 294-316, October.
    6. Borenstein, Severin, 1990. "Airline Mergers, Airport Dominance, and Market Power," American Economic Review, American Economic Association, vol. 80(2), pages 400-404, May.
    7. Nicholas Economides, 1997. "The Economics of Networks," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December.
    8. Encaoua, David & Moreaux, Michel & Perrot, Anne, 1996. "Compatibility and competition in airlines demand side network effects," International Journal of Industrial Organization, Elsevier, vol. 14(6), pages 701-726, October.
    9. Vickrey, William S, 1969. "Congestion Theory and Transport Investment," American Economic Review, American Economic Association, vol. 59(2), pages 251-260, May.
    10. Singal, Vijay, 1996. "Airline Mergers and Competition: An Integration of Stock and Product Price Effects," The Journal of Business, University of Chicago Press, vol. 69(2), pages 233-268, April.
    11. Ken Hendricks & Michele Piccione & Guofu Tan, 1995. "The Economics of Hubs: The Case of Monopoly," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(1), pages 83-99.
    12. Kim, E Han & Singal, Vijay, 1993. "Mergers and Market Power: Evidence from the Airline Industry," American Economic Review, American Economic Association, vol. 83(3), pages 549-569, June.
    13. 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.
    14. Severin Borenstein, 1989. "Hubs and High Fares: Dominance and Market Power in the U.S. Airline Industry," RAND Journal of Economics, The RAND Corporation, vol. 20(3), pages 344-365, Autumn.
    15. Borenstein, Severin & Rose, Nancy L, 1994. "Competition and Price Dispersion in the U.S. Airline Industry," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 653-683, August.
    16. 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.
    17. Daniel, Joseph I. & Pahwa, Munish, 2000. "Comparison of Three Empirical Models of Airport Congestion Pricing," Journal of Urban Economics, Elsevier, vol. 47(1), pages 1-38, January.
    18. Ken Hendricks & Michele Piccione & Guofu Tan, 1997. "Entry and Exit in Hub-Spoke Networks," RAND Journal of Economics, The RAND Corporation, vol. 28(2), pages 291-303, Summer.
    19. Steven A. Morrison & Clifford Winston, 1989. "Enhancing the Performance of the Deregulated Air Transportation System," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1989 Micr), pages 61-123.
    20. 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.
    21. Douglas W. Caves & Laurits R. Christensen & Michael W. Tretheway, 1984. "Economies of Density versus Economies of Scale: Why Trunk and Local Service Airline Costs Differ," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 471-489, Winter.
    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. Austan Goolsbee & Chad Syverson, 2008. "How Do Incumbents Respond to the Threat of Entry? Evidence from the Major Airlines," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(4), pages 1611-1633.
    2. Jan K. Brueckner, 2002. "Airport Congestion When Carriers Have Market Power," American Economic Review, American Economic Association, vol. 92(5), pages 1357-1375, December.
    3. Nicholas G. Rupp & George M. Holmes & Jeff DeSimone, "undated". "Airline Schedule Recovery after Airport Closures: Empirical Evidence since September 11th," Working Papers 0207, East Carolina University, Department of Economics.
    4. 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.
    5. Michael Mazzeo, 2003. "Competition and Service Quality in the U.S. Airline Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 22(4), pages 275-296, June.
    6. 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.
    7. Claudio Agostini, 2005. "El Mercado de Transporte Aéreo: Lecciones para Chile de una Revisión de la Literatura," ILADES-UAH Working Papers inv163, Universidad Alberto Hurtado/School of Economics and Business.
    8. Sayed Ajaz Hussain & Serkan Bahceci, 2008. "Network Structure and Design in the Deregulated U.S. Airline Industry: an Argument for Re-Regulation?," Working Papers tecipa-325, University of Toronto, Department of Economics.
    9. Steven, Adams B. & Yazdi, Amirhossein Alamdar & Dresner, Martin, 2016. "Mergers and service quality in the airline industry: A silver lining for air travelers?," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 89(C), pages 1-13.
    10. Jan K. Brueckner, 2008. "Slot-Based Approaches to Airport Congestion Management," CESifo Working Paper Series 2302, CESifo.
    11. Harumi Ito & Darin Lee, 2003. "Low Cost Carrier Growth in the U.S. Airline Industry: Past, Present, and Future," Working Papers 2003-12, Brown University, Department of Economics.
    12. Kefeng Xu & Yan Dong, 2007. "Scheduled Delays? Scheduled Time Competition and On-Time Performance in the Airline Industry," Working Papers 0015, College of Business, University of Texas at San Antonio.
    13. Elizabeth E. Bailey, 2002. "Aviation Policy: Past and Present," Southern Economic Journal, John Wiley & Sons, vol. 69(1), pages 12-20, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Christopher Mayer & Todd Sinai, 2003. "Network Effects, Congestion Externalities, and Air Traffic Delays: Or Why Not All Delays Are Evil," American Economic Review, American Economic Association, vol. 93(4), pages 1194-1215, September.
    2. Zhang, Anming & Czerny, Achim I., 2012. "Airports and airlines economics and policy: An interpretive review of recent research," Economics of Transportation, Elsevier, vol. 1(1), pages 15-34.
    3. Yahua Zhang & David Round, 2009. "Policy Implications of the Effects of Concentration and Multimarket Contact in China’s Airline Market," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 34(4), pages 307-326, June.
    4. Gil, Ricard & Kim, Myongjin, 2021. "Does competition increase quality? Evidence from the US airline industry," International Journal of Industrial Organization, Elsevier, vol. 77(C).
    5. Anming Zhang & Yimin Zhang & Joseph A. Clougherty, 2011. "Competition and Regulation in Air Transport," Chapters, in: André de Palma & Robin Lindsey & Emile Quinet & Roger Vickerman (ed.), A Handbook of Transport Economics, chapter 35, Edward Elgar Publishing.
    6. Claudio Agostini, 2005. "El Mercado de Transporte Aéreo: Lecciones para Chile de una Revisión de la Literatura," ILADES-UAH Working Papers inv163, Universidad Alberto Hurtado/School of Economics and Business.
    7. Richard, Oliver, 2003. "Flight frequency and mergers in airline markets," International Journal of Industrial Organization, Elsevier, vol. 21(6), pages 907-922, June.
    8. Clougherty, Joseph A., 2002. "US domestic airline mergers: the neglected international determinants," International Journal of Industrial Organization, Elsevier, vol. 20(4), pages 557-576, April.
    9. Lin, Ming Hsin & Zhang, Anming, 2016. "Hub congestion pricing: Discriminatory passenger charges," Economics of Transportation, Elsevier, vol. 5(C), pages 37-48.
    10. Brueckner, Jan K. & Goebel, Anton & Niskanen, Esko, 1997. "Airline Deregulation: The American Experience and Prospects for Europe," Discussion Papers 149, VATT Institute for Economic Research.
    11. Dunn, Abe, 2008. "Do low-quality products affect high-quality entry? Multiproduct firms and nonstop entry in airline markets," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1074-1089, September.
    12. Brueckner, Jan K. & Lee, Darin & Singer, Ethan S., 2013. "Airline competition and domestic US airfares: A comprehensivereappraisal," Economics of Transportation, Elsevier, vol. 2(1), pages 1-17.
    13. Fu, Xiaowen & Jin, Huan & Liu, Shaoxuan & Oum, Tae H. & Yan, Jia, 2019. "Exploring network effects of point-to-point networks: An investigation of the spatial patterns of Southwest Airlines’ network," Transport Policy, Elsevier, vol. 76(C), pages 36-45.
    14. Kai Hüschelrath & Kathrin Müller, 2014. "Airline Networks, Mergers, and Consumer Welfare," Journal of Transport Economics and Policy, University of Bath, vol. 48(3), pages 385-407, September.
    15. Borsati, Mattia & Fageda, Xavier, 2024. "Airline price responses in the face of demand shocks: European lessons from the COVID-19 pandemic," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 186(C).
    16. Roller, Lars-Hendrik & Sickles, Robin C., 2000. "Capacity and product market competition: measuring market power in a 'puppy-dog' industry," International Journal of Industrial Organization, Elsevier, vol. 18(6), pages 845-865, August.
    17. Barla, P., 1999. "Demand Uncertainty and Airline Network Morphology with Strategic Interactions," Papers 99-06, Laval - Recherche en Energie.
    18. JA. Clougherty, 2000. "US domestic airline alliances: does the national welfare impact turn on strategic international gains?," Contemporary Economic Policy, Western Economic Association International, vol. 18(3), pages 304-314, July.
    19. Jia Yan & Xiaowen Fu & Tae Oum, 2008. "Exploring Network Effects of Point-to-Point Networks: An Investigation of the Spatial Entry Patterns of Southwest Airlines," Working Papers 2008-21, School of Economic Sciences, Washington State University.
    20. Yetiskul, Emine & Matsushima, Kakuya & Kobayashi, Kiyoshi, 2005. "Airline Network Structure with Thick Market Externality," Research in Transportation Economics, Elsevier, vol. 13(1), pages 143-163, January.

    More about this item

    JEL classification:

    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L5 - Industrial Organization - - Regulation and Industrial Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:nbr:nberwo:8701. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.