Economic effects of re-allocating airports slots: a vertical differentiation approach

The promotion of competition policies in air transport faces several obstacles, one being the absence of mobility of airports’ slots. The European Commission has been preparing legislation on this issue as a springboard to a more efficient use of scarce airport capacity. This paper analyses possible outcomes of such a policy, using a model that captures the main features of the airport market before and after the re-allocation of slots. Results show that the achievement of more efficiency depends on the criteria used for its assessment. In particular, welfare falls after the process of re-allocation. An empirical test of airlines’ pricing strategies is presented, and confirms one of the model's results, i.e. that airlines differentiate more prices between peak load and off peak hours in a more competitive environment.