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Airport slots, secondary trading, and congestion pricing at an airport with a dominant network airline

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  • Noto, Claudio

Abstract

This study investigates the efficiency of airport capacity allocation at a stylized, partly congested airport with a dominant hub carrier and a local airline that both enjoy market power. While the local airline provides direct travel utility only, the hub carrier provides additional, indirect travel utility from network density benefits. As the density benefits increase along with market concentration, they formally capture the dilemma of hub concentration. In equilibrium, the hub carrier is dominant but its network remains inefficiently small. Thus, the three common allocation instruments yield ambiguous welfare results: Airport slots only restore efficiency when a use obligation enforces slot utilization, secondary slot trading leads to market preemption by the hub carrier while the network undersize persists, and congestion pricing increases the known welfare caveat from market power; removing the network undersize requires a subsidy with a service obligation. In contrast with previous studies, which mostly consider flights as homogenous goods and airlines as symmetric, the results at hand illustrate that vertical product differentiation based on network density benefits may increase the allocation inefficiencies that arise from imperfect competition. This insight may be crucial for airport capacity allocation at a concentrated network hub with a dominant carrier.

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  • Noto, Claudio, 2020. "Airport slots, secondary trading, and congestion pricing at an airport with a dominant network airline," Research in Transportation Economics, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:retrec:v:79:y:2020:i:c:s0739885919303282
    DOI: 10.1016/j.retrec.2019.100804
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    3. Lázaro Florido-Benítez, 2023. "A Bibliometric Overview of the International Airports and Airlines ‘IAA’ Topic in Journals and Scientific Community," Logistics, MDPI, vol. 7(3), pages 1-25, June.

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    More about this item

    Keywords

    Airport capacity allocation; Airport slots; Secondary slot trading; Airport congestion pricing; Hub concentration; Asymmetric airlines; Network density benefits;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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