An Airport Pricing Versus Slots Game : The Case of Substitute Air Services

Many passengers can choose among various destinations for their flight trips (for instance, a leisure trip from Asia to Europe or the US). A major feature of the present study is to incorporate substitute air services for origin-destination passengers into the analysis of equilibrium airport congestion policies involving slot and pricing policies in a three-airport network. The analysis shows that the presence of substitute air services is a necessary condition for equilibrium slot quantities to reach the 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. Numerical examples indicate that the welfare performance of pricing policies is better than slot policies when the level of substitutability is relatively low or high. In the middle range of substitutability, the welfare performance of slot policies is better than pricing policies and can even implement the first-best outcome