Airport Congestion When Carriers Have Market Power by Jan

This paper analyzes airport congestion when carriers are nonatomistic, showing how the results of the road-pricing literature are modi ̄ed when the economic agents causing congestion have market power. The analysis shows that when an airport is dominated by a monopolist, either discriminating or nondiscriminating, congestion is fully internalized, provided that a separability assumption on travel bene ̄ts is satis ̄ed. The analysis thus yields no role for congestion pricing under monopoly conditions. Under a Cournot oligopoly, however, carriers are shown to internalize only the congestion they impose on themselves. A toll that captures the uninternalized portion of congestion can then improve the allocation of tra±c. The toll is equal to the congestion cost from an extra °ight times one minus a carrier's °ight share. At an airport like Chicago-O'Hare, this rule would imply that United and American would be charged for only about half of the congestion created by an additional °ight. Airport Congestion When Carriers Have Market Power