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Airlines' Strategic Interactions and Airport Pricing in a Dynamic Bottleneck Model of Congestion

Author

Listed:
  • Hugo E. Silva

    (VU University Amsterdam)

  • Erik T. Verhoef

    (VU University Amsterdam)

  • Vincent A.C. van den Berg

    (VU University Amsterdam)

Abstract

This discussion paper resulted in a publication in the Journal of Urban Economics , 2014, 13-27. 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 when a Stackelberg leader interacts with a competitive fringe, charging the congestion toll that is derived for fully atomistic carriers to both leader and fringe yields the first-best outcome. This holds regardless of the leader's internalization of congestion in the unregulated equilibrium, and regardless of the assumed demand substitution pattern between firms. This result implies that the financial deficit under optimal pricing may be less severe than what earlier studies suggest. Finally, we show that there are various alternative toll regimes that also induce the welfare maximizing outcome, and therefore widen the set of choices for regulators.

Suggested Citation

  • Hugo E. Silva & Erik T. Verhoef & Vincent A.C. van den Berg, 2012. "Airlines' Strategic Interactions and Airport Pricing in a Dynamic Bottleneck Model of Congestion," Tinbergen Institute Discussion Papers 12-056/3, Tinbergen Institute, revised 15 Jul 2013.
    • Handle: RePEc:tin:wpaper:20120056
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    References listed on IDEAS

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    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. Lindsey, Robin & de Palma, André & Silva, Hugo E., 2019. "Equilibrium in a dynamic model of congestion with large and small users," Transportation Research Part B: Methodological, Elsevier, vol. 124(C), pages 82-107.
    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. Doi, Naoshi & Kono, Tatsuhito & Suzaki, Izumo, 2023. "Optimizing Multiple Airport Charges with Endogenous Airline Quality Considering the Marginal Cost of Public Funds," MPRA Paper 116176, University Library of Munich, Germany.
    5. Kenneth Small, 2015. "The Bottleneck Model: An Assessment and Interpretation," Working Papers 141506, University of California-Irvine, Department of Economics.
    6. Verhoef, Erik T., 2017. "Cost recovery of congested infrastructure under market power," Journal of Urban Economics, Elsevier, vol. 101(C), pages 45-56.
    7. Verhoef, Erik T. & Silva, Hugo E., 2017. "Dynamic equilibrium at a congestible facility under market power," Transportation Research Part B: Methodological, Elsevier, vol. 105(C), pages 174-192.
    8. Hugo E. Silva & Robin Lindsey & André de Palma & Vincent A. C. van den Berg, 2017. "On the Existence and Uniqueness of Equilibrium in the Bottleneck Model with Atomic Users," Transportation Science, INFORMS, vol. 51(3), pages 863-881, August.
    9. 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.
    10. Li, Zhi-Chun & Huang, Hai-Jun & Yang, Hai, 2020. "Fifty years of the bottleneck model: A bibliometric review and future research directions," Transportation Research Part B: Methodological, Elsevier, vol. 139(C), pages 311-342.

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    More about this item

    Keywords

    Airport pricing; Congestion; Bottleneck model;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • 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

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