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Airport Congestion Pricing When Airlines Price Discriminate

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  • Achim I. Czerny
  • Anming Zhang

Abstract

This paper develops a tractable model of third-degree price discrimination in airline markets that features two types of passengers with different time valuations, carriers in Cournot competition and a congested infrastructure. We find that price discrimination always leads to a loss of social welfare when, in the first stage, the congestion charge is chosen to maximize welfare by incorporating carriers’ behavior in the second stage. We also show that the welfare loss can be small if, in the process of choosing the optimal airport charges, carriers were treated as atomistic.

Suggested Citation

  • Achim I. Czerny & Anming Zhang, 2012. "Airport Congestion Pricing When Airlines Price Discriminate," WHU Working Paper Series - Economics Group 12-02, WHU - Otto Beisheim School of Management.
    • Handle: RePEc:whu:wpaper:12-02
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    File URL: https://nbn-resolving.org/urn:nbn:de:hbz:992-opus4-4078
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Maxime Agbo & Marc Santugini & Jonathan W. Williams, 2012. "Screening with Congestion," Cahiers de recherche 1239, CIRPEE.
    3. Yang, Hangjun & Zhang, Anming, 2012. "Effects of high-speed rail and air transport competition on prices, profits and welfare," Transportation Research Part B: Methodological, Elsevier, vol. 46(10), pages 1322-1333.
    4. 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.
    5. Czerny, Achim I., 2013. "Public versus private airport behavior when concession revenues exist," Economics of Transportation, Elsevier, vol. 2(1), pages 38-46.

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    More about this item

    Keywords

    Price discrimination; infrastructure; congestion; Cournot competition; airlines;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

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