Abstract
This paper develops a two-period model with peak/off-peak demands that incorporates three types of passengers: (1) passengers who are scheduled for peak departure and depart during the peak period, (2) passengers who are scheduled for peak departure but depart during the off-peak period because of congestion, and (3) passengers who are scheduled for off-peak departure. An increase in peak supply may turn own type-1 passengers into type-2 passengers, which is called self-imposed schedule delay. Our main result is that carriers with market power internalize self-imposed schedule delay costs. The investigation of a uniform-toll regime reveals that the welfare-optimal uniform toll corrects for external schedule delay only if schedule delay cost is sufficiently high.
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