Internalization of airport congestion

This paper analyzes the internalization of airport congestion by nonatomistic carriers. It is shown that, in allocating traffic between the peak and off-peak periods, a monopolist fully accounts for the effect of congestion on passenger time costs, while also taking account of its impact on his own operating costs. The analysis thus suggests no role for congestion pricing under monopoly conditions. In an oligopoly setting, carriers are shown to internalize only the congestion they impose on themselves. A congestion toll that captures the uninternalized portion of external costs can then improve the allocation of traffic. (C) 2002 Elsevier Science Ltd. All rights reserved.