Airport capacity extension, fleet investment, and optimal aircraft scheduling in a multilevel market model: quantifying the costs of imperfect markets

Abstract We present a market model of liberalized aviation with independent decision makers. The consists hierarchical, trilevel optimization problem where perfectly competitive budget-constrained airports decide (in the first level) on optimal runway capacity extensions and airport charges by anticipating long-term fleet investment medium-term aircraft scheduling decisions taken set imperfectly airlines second level). Both anticipate short-term outcome ticket third compare our to an integrated single-level (benchmark) in which investments, scheduling, market-clearing are simultaneously welfare-maximizing social planner. Using simple six example from literature, we illustrate inefficiency long-run investments both may be observed markets airlines.