Decentralized congestion policies : pricing versus (grandfathered) slots in airport networks

Abstract

This dissertation consists of four related studies on the assessment of decentralized welfare-maximizing airport congestion policies involving (grandfathered) slot policy and pricing policy. Different demand structures and airport networks are considered in the presence of origin-destination passengers. These studies capture that local and non­local origin-destination passengers may have one or two destinations to choose from, in which the two destinations may or may not be considered as substitutes. This dissertation shows that even a small variation can fundamentally change the analysis and the assessment of the congestion policies. The first study considers networks with two or three airports. The results show that equilibrium policies involve slots when airport profits do not matter and pricing policies when airport profits matter. The main results show that in the presence of congestion effects, equilibrium slot policies will lead to too high and equilibrium pricing policies to too low passenger quantities relative to the first best outcome that maximizes the welfare of all airport regions. The second study considers a stylized airport network with two airports designed to clearly identify the role of local and non-local passengers. The analysis shows that the local welfare-maximizing slot quantity can coincide with the first-best outcome whereas this is impossible in the case of pricing policy. Whether the outcomes coincide in the case of slot policy depends on the shares of inframarginal and marginal local and non-local passengers. The results provide clear insights on the reasons why slot quantities are found to be excessive in the three-airport network considered in the first study. The third study is an extension of the analysis of the three-airport network considered in the first study. This extension involves a variation of the demand structure in the sense that the air services offered at the congested airports are considered as imperfect substitutes whereas they are not considered as substitutes in the first study. The analysis shows that the presence of substitute air services is a necessary condition for equilibrium slot quantities to reach the first-best outcome. The results derived from the second study help understand the reasons why equilibrium slot quantities can lead to first-best outcome. Whereas equilibrium pricing levels will always be too high relative to the first-best prices independent of the presence or absence of substitute air services. By contrast with the third study, the fourth study proceeds with the consideration of substitute air services for non-local passengers in a three-airport network to concentrate on the role of airport competition. The results show that airport competition will lead to too low equilibrium slot quantities in the case of slot policies, or too low equilibrium prices in the case of pricing policies, to maximize the total welfare of the two congested airports. The results further show that slot policies can lead to first-best outcome that maximizes the total welfare of three airport regions. Whereas pricing policies are too strict with too high equilibrium prices relative to the first-best outcome.