Airport Slot Allocation with Grandfather Rights
K Guittet, SDER (LEEA), FR; N Gruyer, ENAC (LEEA), FR
Grandfather rights and centralized airport slot allocation rules in use in most EU countries are often criticized for harming competition. We show however that anti-competitive airline behaviors may actually raise the overall welfare.
In this paper, we study the airport slot allocation process currently in use in most European countries (France, Germany...). In particular, we consider a duopoly model in which two airlines first share the limited airport capacity according to a centralized allocation rule (which accounts for historical rights) and then compete in quantities.
When capacity and quantity taxes are fixed, we find that a strong asymmetry of slot allocation is detrimental to welfare. However, the regulator may find it advantageous to keep at least a small difference between airlines. Indeed, anti-competitive airline behaviors (essentially, airlines are willing to prevent the competitor from raising its production capacity, even if this means producing more than the ?efficient? quantity) may sometimes lead to a greater overall market quantity than the one that would result from the unconstrained competitive equilibrium. We also show that for a given administrative allocation process it may happen that the final price paid by the consumers rises when the overall airport capacity increases. This is related to the fact that the cost needed to sustain the above mentionned anti-competitive behavior increases as well.
When the regulator also decides for the capacity and quantity taxes, we find that the more profitable/less costly way to put a given quantity on the final market generally means favorizing the historically large airline to the extend permitted by grandfather rights. However, when airlines are initially close, or when the desired quantity is far enough from the airport capacity, the regulator may find it more profitable to restore symmetry.
Association for European Transport