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

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  • 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
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    Cited by:

    1. 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.
    2. 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.
    3. Austan Goolsbee & Chad Syverson, 2008. "How Do Incumbents Respond to the Threat of Entry? Evidence from the Major Airlines," The Quarterly Journal of Economics, Oxford University Press, vol. 123(4), pages 1611-1633.
    4. 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.
    5. Jan K. Brueckner, 2008. "Slot-Based Approaches to Airport Congestion Management," CESifo Working Paper Series 2302, CESifo Group Munich.
    6. Jan K. Brueckner, 2002. "Airport Congestion When Carriers Have Market Power," American Economic Review, American Economic Association, vol. 92(5), pages 1357-1375, December.
    7. Nicholas G. Rupp & George M. Holmes & Jeff DeSimone, 2005. "Airline Schedule Recovery after Airport Closures: Empirical Evidence since September 11," Southern Economic Journal, Southern Economic Association, vol. 71(4), pages 800-820, April.
    8. 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.
    9. 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.
    10. Claudio Agostini, 2005. "El Mercado de Transporte Aéreo: Lecciones para Chile de una Revisión de la Literatura," ILADES-Georgetown University Working Papers inv163, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.

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    JEL classification:

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

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