A model of airport slot allocation with posted prices

In this paper, we study the impact of the introduction of posted prices in the slot allocation process currently in use at congested airports in most European countries. In particular, we show that if the airport is initially saturated, while low level of slot prices entail no response from the airlines, requests for slots ”suddenly and violently” drop when the price reaches a certain threshold. In general, there is therefore no market clearing price for airport slots. We also present a dynamic model which highlights how the current grandfather rule - stating that slots used today are kept in the future - generates baby-sitting, that is airlines requiring and using slots today just because they expect them to be profitable in the future.