Optimal Use-It-or-Lose-It Rules for Airport Slot Management
23 Pages Posted: 22 Sep 2018 Last revised: 3 Sep 2019
Date Written: August 31, 2019
This paper considers a single airport and two time periods, where the incumbent competes with a new entrant in the second period. Slot allocation is based on grandfathering and features priority for new entrants. Grandfathering is conditional on a minimum use of capacity in the first period (use-it-or-lose-it). The analysis shows that the incumbent should express a preference for use-it-or-lose-it requirements that is lower than the one that maximizes welfare. Numerical simulations indicate that the discrepancy between the incumbent's and the welfare viewpoints are decreasing when capacity is expanded and increasing when demand is growing. The main policy lesson is that use-it-or-lose-it requirements should be jointly decided by incumbents and new entrants and that these decisions should be made on a case-by-case basis.
Keywords: Airports, Use-It-or-Lose-It, Grandfather Rules, Priority Rules, Market Entry
JEL Classification: L93
Suggested Citation: Suggested Citation