A Pricing versus Slots Game in Airport Networks

42 Pages Posted: 24 Aug 2017 Last revised: 21 Jan 2019

See all articles by Achim Czerny

Achim Czerny

Hong Kong Polytechnic University - Faculty of Business

Hao Lang

Hong Kong Polytechnic University - Faculty of Business

Date Written: January 20, 2019

Abstract

This paper considers networks with two or three complementary airports. In each case, two airports independently choose between slot and pricing policies, where slot policies involve grandfather rules. We show that equilibrium policies involve slots when airport profits do not matter and pricing policies when airport profits matter. We further show that the equilibrium slot policies reach the first-best passenger quantities when congestion effects are absent. Otherwise, equilibrium slot policies will lead to excessive and equilibrium pricing policies to too low passenger quantities relative to the first best. Numerical examples indicate that slot policies can be beneficial relative to pricing policies when time valuations are low and vice versa when time valuations are high. The analysis formally distinguishes the sources for the different outcomes under slot and pricing policies by distinguishing between a variable effect and a distribution effect. The variable effect captures that decision variables are quantities in the case of slot policies and prices in the case of pricing policies. The distribution effect captures that airport slot allocation is based on grandfather rules.

Keywords: Airports; slots; pricing; local governments; instrument effect; distribution effect

JEL Classification: L93; R41; R48

Suggested Citation

Czerny, Achim and Lang, Hao, A Pricing versus Slots Game in Airport Networks (January 20, 2019). Available at SSRN: https://ssrn.com/abstract=3023547 or http://dx.doi.org/10.2139/ssrn.3023547

Achim Czerny (Contact Author)

Hong Kong Polytechnic University - Faculty of Business ( email )

9/F, Li Ka Shing Tower
The Hong Kong Polytechnic University
Hong Kong, Hung Hom, Kowloon M923
China

Hao Lang

Hong Kong Polytechnic University - Faculty of Business ( email )

9/F, Li Ka Shing Tower
The Hong Kong Polytechnic University
Hong Kong, Hung Hom, Kowloon M923
China

Register to save articles to
your library

Register

Paper statistics

Downloads
55
Abstract Views
351
rank
374,802
PlumX Metrics