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Hub congestion pricing: Discriminatory passenger charges

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  • Lin, Ming Hsin
  • Zhang, Anming

Abstract

This paper investigates airport determination of per-flight and per-passenger charges in a hub-spoke network. The hub airport is congestible and it levies a per-flight charge on its carriers and discriminatory per-passenger charges on the local and connecting passengers. Our main results are: (i) the socially optimal per-passenger charges should take the higher congestion contribution by connecting passengers into account, leading to a higher charge on a connecting passenger than on a local passenger; (ii) generally, the social optimum cannot be achieved when the hub only levies a per-flight charge on carriers; (iii) the optimal per-connecting passenger charge should be lower (higher, respectively) than the per-local passenger charge when the per-flight charge is large (small, respectively); and (iv) a profit-maximizing hub can impose lower per-connecting passenger charges as compared to per-local passenger charges, owing to its market power, and this possibility is further strengthened by economies of traffic density.

Suggested Citation

  • Lin, Ming Hsin & Zhang, Anming, 2016. "Hub congestion pricing: Discriminatory passenger charges," Economics of Transportation, Elsevier, vol. 5(C), pages 37-48.
    • Handle: RePEc:eee:ecotra:v:5:y:2016:i:c:p:37-48
    DOI: 10.1016/j.ecotra.2016.02.001
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