Competitive Effects of Exchanges or Sales of Airport Landing Slots

Abstract

We investigate the competitive effects of exchanges or sales of airport landing slots. In our model, airlines with potentially asymmetric slot allocations must decide upon which routes to use their landing slots. When all airlines serve the same routes in a slot-constrained Cournot Nash equilibrium, small changes in slot allocations among airlines do not affect the overall allocation of slots across routes or air fares. In a symmetric equilibrium where slot holding airlines have the same number of slots, we find that an increase in the number of slot-holding airlines leads to higher social welfare and consumer surplus, although the number of served routes may decline. Under asymmetric slot allocations, larger slot holders serve demand routes that are not served by smaller slot holders. In this situation, transfers of slots from larger to smaller slot holders increase social welfare and consumer surplus, even though fewer routes may be served. More generally, our results suggest that increases in slot concentration are harmful to consumers and social welfare, although consumers on relatively thin routes may gain air transportation service as a result.