Refine
Document Type
- Working Paper (2)
Language
- English (2)
Has Fulltext
- yes (2)
Is part of the Bibliography
- no (2)
Keywords
- Congestion (2)
- Stauung (2)
- Airline (1)
- Airlines (1)
- Airports (1)
- Cournot competition (1)
- Cournot-Oligopol (1)
- Flughäfen (1)
- Infrastructure (1)
- Infrastruktur (1)
Institute
This paper develops a tractable model of third-degree price discrimination in airline markets that features two types of passengers with different time valuations, carriers in Cournot competition and a congested infrastructure. We find that price discrimination always leads to a loss of social welfare when, in the first stage, the congestion charge is chosen to maximize welfare by incorporating carriers’ behavior in the second stage. We also show that the welfare loss can be small if, in the process of choosing the optimal airport charges, carriers were treated as atomistic.
We consider a public and congested airport served by airlines that may have market power, and two types of travelers with different relative values of time. We find that in the absence of passenger-type-based price discrimination by airlines, it can be useful to increase the airport charge so as to protect passengers with a great relative time value from excessive congestion caused by passengers with a low relative time value. As a result, the socially efficient airport charge can be substantially higher than what we learned from the recent literature on congestion pricing with non-atomistic airlines.