Abstract
We analyze the behavior of airlines in terms of route structure choice using a differentiated duopoly model that accounts for congestion externalities, passenger benefits from increased frequency, passenger connecting costs and airline endogenous hub location. We also examine the route structure configuration that maximizes welfare and whether it can arise as an equilibrium when a regulator implements optimal airport pricing, but does not regulate directly the route structure choice. We find that this is not always the case and that, therefore, an instrument directly aimed at regulating route structure choice may be needed to maximize welfare, in addition to per-passenger and per-flight tolls designed to correct output inefficiencies. This holds true when the regulator is constrained to set non-negative tolls, but also for unconstrained tolling. Finally, we also study the relative efficiency of airport pricing when the optimal route structure configuration cannot be decentralized by tolling.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
