strategic buyers and exclusionary contracts this paper characterizes equilibrium exclusionary contracts between buyers an incumbent firm and a potential entrant when buyers can either vertically integrate or contract with the outside entrant in this setting exclusionary contracts are generally shown to be efficient and to deter inefficient entry that would otherwise occur with multiple unorganized buyers equilibrium contracts are shown to take a divide and conquer form and in some cases to deter some efficient entry in such cases efficient contracting can be restored by a policy that prohibits price discrimination and gives agents free reign to sign exclusionary agreements copyright 1994 by american economic association

market power of local cable television franchises evidence from the effects of deregulation the 1989 cable act eliminated most price regulation of cable television operators including the right of municipalities to enforce price terms in franchise agreements deregulation was justified at least partially by the contention that competition from other entertainment media eliminated any market power of cable franchises we examine the value at sale of existing cable systems before and after deregulation assuming that this value represents the expected present value of future profits deregulation had the predicted negligible effect on profits in cities with significant broadcast competition however profits appear to have increased in areas where the competition from broadcast television was less severe we explore several explanations for this increase and conclude that significant market power is the most plausible explanation

the competitive effects of vertical agreements for many years there were few distinctions drawn between horizontal and vertical agreements both were considered anticompetitive and subject to per se condemnation under the antitrust laws recently however this approach has come under attack and what was once the conventional wisdom is no longer so indeed there is growing acceptance of the view that vertical agreements can rarely have anticompetitive consequences per se legality would then be the appropriate standard in this paper we investigate the competitive implications of a particular vertical agreement the imposition of exclusive dealing requirements by a manufacturer on his distributors however to maintain the focus of the analysis we do not consider ultimate welfare gains or losses in an early application of economic analysis to this practice aaron director and edward levi 1956 suggest that exclusive dealing would be anticompetitive if it raised entry costs for rivals our object following this conjecture see their p 293 is to examine the market conditions under which exclusive dealing impedes entry howard marvel 1982 dealt with the practice of exclusive dealing he provides an efficiency rationale for exclusive dealing ignores the prospect that anticompetitive effects may follow and concludes that exclusive dealing ought therefore to be treated as legal per se p 25 this paper examines the possible anticompetitive effects neglected by marvel i market conditions for exclusive dealing

investment in information acquisition this paper presents a simple model in which a community must decide on the amount of real investment and investment in information so as to maximise the expected utility of consumption over two periods it is shown that under conditions involving the product of the elasticity of the marginal utility of consumption and the elasticity of the production function that optimal real investment is either a monotone function of the information or is independent of it in the former case information is of value and it is optimal to invest a positive amount in information acquisition in the latter case information has no value and society devotes no resources to information acquisition

investment in real assets and information acquisition the oce preferences case abstract an agent optimizes over real investment and investment in information acquisition while maximizing a two period utility that captures his ordinal certainty equivalent oce preferences optimal investment is characterized and the impact of risk and time preferences on it is investigated

airport congestion when carriers have market power this paper analyzes airport congestion when carriers are nonatomistic showing how the results of the road pricing literature are modified when the economic agents causing congestion have market power the analysis shows that when an airport is dominated by a monopolist congestion is fully internalized yielding no role for congestion pricing under monopoly conditions under a cournot oligopoly however carriers are shown to internalize only the congestion they impose on themselves a toll that captures the uninternalized portion of congestion may then improve the allocation of traffic the analysis is supported by some rudimentary empirical evidence

the competitive implications of top of the market and related contract pricing clauses this article examines the competitive implications of contract pricing arrangements which link the contract price to the subsequent cash price we focus on so called top of the market pricing tomp in cattle procurement the tomp clause is shown to have anticompetitive consequences when the same buyers who purchase contract cattle with the tomp clause also compete to procure cattle in the subsequent spot market the tomp clause reduces packers incentives to compete aggressively in the spot market although tomp pricing is not in producers collective interest rational sellers may nonetheless sign these contracts with little or no financial inducement

distributional consequences of airport congestion pricing abstract imposition of airport congestion pricing redistributes welfare among commercial regional and general aviation this article extends daniel s econometrica63 327 370 1995 stochastic bottleneck model with dynamically adjusting traffic rates queuing delays and congestion fees to include elastic demand heterogeneous operating time preferences and heterogeneous layover and queuing time values using parameters from minneapolis st paul airport simulations of congestion pricing determine its effects on equilibrium traffic patterns queuing delays schedule delays airport revenues and social welfare gains by commercial aviation common travelers and airport authorities exceed losses by general and regional aviation the article evaluates several price and rebate programs and proposes several that are self financing and pareto improving

a simple theory of predation abstractwe propose a simple theory of predatory pricing based on incumbency advantages scale economies and sequential buyers or markets the prey needs a critical scale to be successful the incumbent or predator has an initial advantage and is ready to make losses on earlier buyers to deprive the prey of the scale it needs thus making monopoly profits on later buyers several extensions are considered including cases in which scale economies exist because of demand externalities or two sided market effects and in which markets are characterized by common costs conditions under which predation may or may not take place in actual cases are also discussed

disruption costs learning by doing and technology adoption abstract we study technology adoption in a dynamic model of price competition adoption involves disruption costs and learning by doing because of disruption costs the adopting firm begins in a market disadvantage which may persist if its rival captures the customers that the adopting firm needs to learn the technology the prospect of future rents by the rival results in i a failure to adopt socially efficient technologies ii an equilibrium preference for technologies that are learned faster but have lower social value and iii more technologies being adopted if more firms enter the market

the competitive effects of vertical agreements comment recent economic analyses of vertical restraints and integration emphasize the circumstances under which these arrangements are socially efficient efficiency claims have proven contentious however for exclusive dealing a vertical restraint that prohibits any outlet carrying a manufacturer s product from stocking substitute brands this paper analyzes the impact of exclusive dealing on competition and allocative efficiency opinions expressed on the impact of exclusive dealing range from the extreme view that it is invariably anticompetitive to the view that it is always procompetitive the u s supreme court has concluded that in hundreds if not thousands of communities where there is a single retailer for a product

congestion pricing and capacity of large hub airports a bottleneck model with stochastic queues this paper models and estimates congestion prices and capacity for large hub airports the model includes stochastic queues time varying traffic rates and endogenous intertemporal adjustment of traffic in response to queuing delay and fees relative costs of queuing and schedule delays are estimated using data from minneapolis st paul simulations calculate equilibrium traffic patterns queuing delays schedule delays congestion fees airport revenues airport capacity and efficiency gains the paper also investigates whether a dominant airline internalizes delays its aircraft impose it tests game theoretic specifications with atomistic nash dominant stackelberg dominant and collusive airline traffic

the competitive effects of vertical agreements comment in a recent paper comanor and frech 1985 cf claim that a manufacturer enjoying a product differentiation advantage could impose exclusive dealing on distributors while also raising its wholesale price the two consumer groups in the model would then pay higher prices than under nonexclusive dealing cf also suggest that exclusive dealing is more likely to emerge when product differentiation is relatively strong cf s analysis does not carefully incorporate the constraints imposed by dealer rationality doing so within cf s model i reach opposite conclusions exclusive dealing will be accepted only if the manufacturer reduces its wholesale price to dealers relative to nonexclusive dealing price rises to one group of consumers but falls to the other moreover exclusive dealing is more likely to emerge when product differentiation is relatively weak

incentives and discrimination optimal incentive mechanisms may require that agents are rewarded differentially even when they are completely identical and are induced to act the same we demonstrate this point by means of a simple incentive model where agents decisions about effort exertion is mapped into a probability that the project will succeed we give necessary and sufficient conditions for optimal incentive mechanisms to be discriminatory we also show that full discrimination across all agents is required if and only if the technology has increasing return to scale in the non symmetric framework we show that negligible differences in agents attributes may result in major differences in rewards in the unique optimal mechanism this abstract was borrowed from another version of this item

naked exclusion efficient breach and downstream competition previous papers by eric b rasmusen j mark ramseyer and john s wiley jr 1991 and ilya r segal and michael d whinston 2000 argue that exclusive contracts can inefficiently deter entry in the presence of scale economies and multiple buyers we first show that these results no longer hold when buyers are final consumers who can breach these contracts and pay expectation damages we then show however that exclusive contracts can inefficiently deter entry if buyers are downstream competitors even in the absence of scale economies and even if breach is possible

free entry and social inefficiency our goal is to provide a simple yet general exposition of the conditions under which the number of entrants in a free entry equilibrium is excessive insufficient or optimal our analysis compares the number of firms that enter a market when there is free entry with the number that would be desired by a social planner who is unable to control the behavior of firms once they are in the market that is we consider the second best problem of choosing the welfare maximizing number of firms while we take as given their noncompetitive behavior after entry we demonstrate that the crucial conditions for establishing the presence of an entry bias can be stated quite simply in terms of the outcome of the postentry game played by entrants in contrast to previous work we do not need to model this postentry game explicitly

private contracting with externalities divide and conquer abstract this paper considers the efficacy of divide and conquer strategies in principal agent games involving contracting with externalities we find that whereas divide and conquer offers can arise in equilibrium under some conditions when the principal s offers are publicly observable they cannot arise in equilibrium when the principal s offers are privately observable and the agents hold passive out of equilibrium beliefs this insight applies to technology and platform adoption decisions with network effects labor relations settlement negotiations and input licensing among others

optimal pricing of flights and passengers at congested airports and the efficiency of atomistic charges abstract this paper investigates and compares airport pricing policies under various types of competition considering both per passenger and per flight charges at congested airports we show that an airport requires both pricing instruments to achieve the first best outcome and we distinguish their role by showing that congestion externalities need to be addressed through per flight tolls whereas the inefficiency caused by airlines market power exertion must be corrected with per passenger subsidies we also show that bertrand competition with differentiated products a type of behavior recently pointed out by the empirical literature as pertinent has policy implications that diverge from analyses that assume cournot competition the welfare gains and congestion reductions of congestion pricing would be higher than what has been advanced before the degree of self financing of airport infrastructure under optimal pricing would be increased and may approach exact self financing and the implied differentiation of charges between asymmetric airlines would be significantly smaller presumably enhancing the political feasibility of welfare maximizing congestion pricing as the potential distributional concerns would be decreased finally we numerically analyze second best policies and find that atomistic pricing may offer a relatively attractive alternative to first best congestion pricing

conceptual developments in the economics of transportation an interpretive survey the objective in this paper is to survey the literature in transportation economics exploring two basic themes first the conceptual developments in the analysis of supply and demand which recognizes noteworthy aggregation biases in the empirical work on aggregate data and indicate that a correct analysis of the issues should take place at a highly disaggregated level second the use of these conceptual developments to evaluate efficiency aspects of transportation pricing investment and the impact of government regulation on resource allocation and distribution in the transportation sector it is important to acknowledge that the survey is based on research throughout the world but our institutional perspective and to some extent the topics that are covered is based largely on the u s experience author

a note on demand for information the oce preferences case abstract this paper considers the optimal decisions of an investor with ordinal certainty equivalent preferences we prove that if risk preferences are of the constant absolute risk aversion type optimal demand for the risky asset and information are independent of time preferences

atomistic congestion tolls at concentrated airports seeking a unified view in the internalization debate abstract the goal of this paper is to bring some unity to the theoretical side of the debate on internalization of airport congestion by showing that all the literature s theoretical results can be derived within one simple and unified framework the analysis starts by replicating the results of brueckner brueckner j k 2002 airport congestion when carriers have market power american economic review 92 1357 1375 who showed that because airlines behaving in cournot fashion internalize congestion they should be charged low congestion tolls the analysis then validates the findings of daniel daniel j i 1995 congestion pricing and capacity of large hub airports a bottleneck model with stochastic queues econometrica 63 327 370 who argued that larger atomistic tolls are required in a model where a stackelberg leader interacts with competitive fringe airlines however it is shown that this result only holds approximately when the carriers outputs are imperfect substitutes

contracts and externalities how things fall apart a single principal interacts with several agents offering them contracts the crucial assumption of this paper is that the outside option payoffs of the agents depend positively on how many uncontracted or free agents there are we study how such a principal unwelcome though he may be approaches the problem of contract provision to agents when coordination failure among the latter group is explicitly ruled out two variants are considered when the principal cannot re approach agents there is a unique equilibrium in which contract provision is split up into two phases in phase 1 simultaneousoffers at good though varying terms are made to a number of agents in phase 2 offers must be made sequentially and their values are discontinuously lower they are close to the very lowest of all the outside options when the principal can repeatedly approach the same agent there is a multiplicity of equilibria in some of these the agents have the power to force delay they can hold off the principal s overtures temporarily but they must succumb in finite time in both models despite beingable to coordinate their actions agents cannot resist an invasion by the principal and hold to their best payoff it is in this sense that things eventually fall apart

comparison of three empirical models of airport congestion pricing abstract we compare three empirical models of airport congestion pricing a standard peak load pricing model with econometrically estimated demand and delay functions morrison 7 morrison and winston 8 a deterministic bottleneck model with traffic adjusting intertemporally to congestion prices vickrey 9 arnott et al 2 and a bottleneck model with time dependent stochastic queuing daniel 4 when implemented using daniel s airport traffic data the models produce similar traffic patterns under weight based pricing but differ significantly under congestion pricing we conclude that structural modeling of stochastic traffic queues and intertemporal substitution is necessary to produce realistic responses of traffic patterns to congestion pricing

naked exclusion an experimental study of contracts with externalities this paper reports the results of an experiment designed to assess the ability of an incumbent seller to profitably foreclose a market with exclusive contracts we use the strategic environment described by rasmusen ramseyer and wiley 1991 and segal and whinston 2000 where entry is unprofitable when sufficiently many downstream buyers sign exclusive contracts with the incumbent when discrimination is impossible the game resembles a stag hunt coordination game in which the buyers payoffs are endogenously chosen by the incumbent seller exclusion occurs when the buyers fail to coordinate on their preferred equilibrium two way non binding pre play communication among the buyers lowers the power of exclusive contracts and induces more generous contract terms from the seller when discrimination and communication are possible the exclusion rate rises divide and conquer strategies are observed more frequently when buyers can communicate with each other exclusion rates are significantly higher when the buyers payoffs are endogenously chosen rather than exogenously given finally secret offers are shown to decrease the incumbent s power to profitably exclude

buyers strategies entry barriers and competition in markets where sellers have customer specific investments and buyers can make credible but costly commitments to switch suppliers buyers strategies attenuate the market power of sellers furthermore since current prices and a buyer s decision to switch suppliers are related limit pricing becomes an equilibrium limit prices increase with the time it takes a buyer to switch suppliers and with buyers switching costs but fall with the level of sunk investments thus sunk investments may restrain the sellers ability to exert market power the paper questions then the standard inverse relationship between market performance and sunk investments

naked exclusion with minimum share requirements we consider a class of contracts in which buyers commit to giving a seller some minimum share of their total purchases we show that such contracts can be used by an incumbent seller to reduce the probability of entry by a rival seller when the incumbent can commit to its selling price as part of the contract we further show that such contracts can be profitable for the incumbent even when exclusive dealing would not be and even when buyers can coordinate their accept or reject decisions the average price paid by the buyers will be higher and welfare will be lower whether or not the incumbent s exclusionary conduct turns out to be successful in preventing entry

the effect of air traffic delays on airline prices abstract a legislative change in takeoff and landing restrictions at laguardia airport provides an opportunity to study the effect of an exogenous shock to product quality on prices in the airline industry i test how the price response varies with the degree of competition in the market i find that prices fall by 1 42 on average for each additional minute of flight delay and that the price response is substantially larger in more competitive markets

the economics of airport congestion pricing abstract conventional economic wisdom suggests that congestion pricing would be an appropriate response to cope with the growing congestion levels currently experienced at many airports several characteristics of aviation markets however may make naive congestion prices equal to the value of marginal travel delays a non optimal response this paper develops a model of airport pricing that captures a number of these features the model in particular reflects that 1 airlines typically have market power and are engaged in oligopolistic competition at different sub markets 2 part of external travel delays that aircraft impose are internal to an operator and hence should not be accounted for in congestion tolls and 3 different airports in an international network will typically not be regulated by the same authority we present an analytical treatment for a simple two node network and some numerical results to illustrate our findings some main conclusions are that second best optimal tolls are typically lower than what would be suggested by congestion costs alone and may even be negative and that cooperation between regulators need not be stable but that non cooperation may lead to welfare losses also when compared to a no tolling situation

history based price discrimination and entry in markets with switching costs a welfare analysis abstract we analyze history based price discrimination in an asymmetric industry where an incumbent protected by switching costs faces an entrant who does not have access to information about consumers purchase histories we demonstrate that consumer surplus is higher with uniform pricing than with history based price discrimination we find that the entry decision is invariant to whether the incumbent implements history based pricing or uniform pricing this implies that the potential abuse of market dominance imposed by history based price discrimination is exploitation not exclusion finally we establish that the profit gain to the incumbent from history based pricing exceeds the associated loss to consumers

airlines strategic interactions and airport pricing in a dynamic bottleneck model of congestion abstract this paper analyzes efficient pricing at a congested airport dominated by a single firm unlike much of the previous literature we combine a dynamic bottleneck model of congestion and a vertical structure model that explicitly considers the role of airlines and passengers we show that a stackelberg leader interacting with a competitive fringe partially internalizes congestion and that there are various toll regimes that induce the welfare maximizing outcome widening the set of choices for regulators in particular charging the congestion toll that would apply for fully competitive carriers and that ignores any internalization to both the leader and the fringe yields the first best outcome

market power and price increases for basic cable service since deregulation since the deregulation of rates for basic cable television service increases in price have outpaced the rate of inflation this article examines whether or not cable systems increased market power or their increased exercise of market power explains these price increases an estimated quasi supply function for cable systems before and after deregulation implies that real basic cable prices increased 18 since deregulation holding quality and other costs constant accounting for 43 of the total real price increase a demand equation is also estimated and the estimated demand elasticity of basic cable does not change after deregulation implying that this 18 real price increase is due to greater exercise of existing market power made possible by the elimination ofprice regulation rather than to an increase in market power caused by a change in the demand elasticity for cable

price vs quantity based approaches to airport congestion management abstract this paper analyzes price and quantity based approaches to management of airport congestion using a model where airlines are asymmetric and internalize congestion under these circumstances optimal congestion tolls are differentiated across carriers and a uniformity requirement on airport charges as occurs when slots are sold or tolls are uniform distorts carrier flight choices flight volumes tend to be too low for large carriers and too high for small carriers but quantity based regimes where the airport authority allocates a fixed number of slots via free distribution or an auction lead carriers to treat total flight volume and thus congestion as fixed and this difference generates an efficient outcome as long as the number of slots is optimally chosen

coordination and discrimination in contracting with externalities divide and conquer abstract the paper studies bilateral contracting between n agents and one principal whose trade with each agent generates externalities on other agents it examines the effects of prohibiting the principal from i coordinating agents on her preferred equilibrium and ii making different contracts available to different agents these effects depend on whether an agent is more or less eager to trade when others trade more the prohibitions reduce the aggregate trade in the former case and have little or no effect in the latter case the inefficiencies under different contracting regimes are linked to the sign of the relevant externalities and are shown to be typically reduced by both prohibitions

why do all the flights leave at 8 am competition and departure time differentiation in airline markets abstract theoretical models of spatial product differentiation indicate that firms face two opposing incentives 1 minimize differentiation in order to steal customers from competitors and 2 maximize differentiation in order to reduce price competition using data on u s airline departure times from 1975 when fares were regulated and 1986 when fares were not regulated we empirically estimate the effect of competition on differentiation we find a negative relationship in both periods in 1986 however reductions in exogenous scheduling constraints increase differentiation implying that firms may be differentiating their products where possible to reduce price competition this effect is not apparent in the 1975 data

naked exclusion comment the ability of an incumbent firm to deter entry by writing exclusionary contracts with customers has been a subject of contention in the antitrust literature the courts concern with such exclusionary contracts has been challenged by those who argue that an incumbent faced with buyers whose interest is to promote entry and competition would have to pay buyers more for the inclusion of exclusionary provisions than it could possibly gain from exclusion in a provocative article eric b rasmusen et al 1991 henceforth rrw have argued that an incumbent may in fact be able to exclude rivals profitably using such contractual provisions because it can exploit buyers lack of coordination in essence if buyers expect other buyers to sign such provisions then they may see little reason not to do so themselves the rrw argument is potentially an important one because most alleged instances of entry deterrence through exclusionary contracts with customers occur in situations with multiple buyers unfortunately however rrw s two main results contain errors in this note we reconsider the rrw model providing correct characterizations of the likelihood and cost of exclusion for an incumbent firm our results indicate that while the intuition suggested by rrw is valid the equilibrium likelihood and cost of exclusion differ from what rrw derive moreover our analysis illuminates some further aspects of exclusionary contracting with multiple buyers among these issues we focus on how an incumbent can use discriminatory offers to exploit the externalities that exist among buyers in the provision of competition in section i we review the basic assumptions of the rrw model in sections ii and iii we then consider in turn the cases of simultaneous and sequential offers studied by rrw for the simultaneous model we distinguish between settings in which the incumbent can and cannot discriminate in its offers to different buyers this distinction is the source of the problem in rrw s analysis their simultaneous offer model assumes no discrimination but the proof of their proposition 2 assumes at times that discrimination is feasible we show that absent the ability to discriminate the incumbent can exclude profitably only when buyers fail to coordinate on their most preferred continuation equilibrium in contrast we show that when discrimination is possible the incumbent need not rely on a lack of buyer coordination to segal department of economics landau building stanford university stanford ca 94305 e mail ilya segal stanford edu whinston department of economics northwestern university 2003 sheridan road evanston il 60208 e mail mwhinston nwu edu we thank eric rasmusen john wiley and participants in the berkeley stanford iofest the university of copenhagen vertical restraints conference and a seminar at the antitrust division of the u s department of justice for helpful comments we thank federico echenique for excellent research assistance 1 for example a recent department of justice investigation concerned the use of exclusive contracts by the leading provider of computerized ticketing services ticketmaster most major cities have several large concert sports venues in many cities ticketmaster has exclusive contracts with a very large share of these venues 2 the other leading response to the argument that contracts with buyers cannot be a profitable method of exclusion is given in philippe aghion and patrick bolton 1987 section i one factor limiting the applicability of the aghion and bolton theory however is that it involves partial exclusion the contracts signed are not fully exclusionary they involve finite stipulated damages and the profitability of the strategy arises from extracting rents from an entrant when entry occurs indeed in the aghion and bolton model contracts that fully exclude offer no benefits over writing no contract at all in section iii of their paper aghion and bolton also discuss a two buyer version of their model in which externalities arise across buyers in contrast to the analysis here and in rrw they allow the incumbent to make an offer to a buyer i that is conditional on the acceptance decision of the other buyer 3 r innes and r j sexton 1994 also discuss the use of discriminatory offers in the context of a model in which buyers can form coalitions with the entrant

selective contracts foreclosure and the chicago school view abstract i examine a mechanism by which exclusive supply contracts may inefficiently deter entry into the market in the model the incumbent supplier selectively offers contracts only to some buyers and convinces them to consent by guaranteeing them low prices the contracts strengthen the monopoly position of the incumbent supplier and allow it to extract rents from the remaining buyers that were not offered contracts aside from the favorable contract terms buyers have another reason to consent to the exclusivity scheme the latter raises the input costs of rival buyers that were not offered contracts the model has potential applications to the recent microsoft antitrust case 1994 i define exclusive supply contract as an agreement under which an upstream firm becomes the exclusive supplier of a downstream firm the downstream firm is prohibited from buying from other suppliers

upfront payments and exclusion in downstream markets although upfront payments are often observed in contracts between manufacturers and retailers little is known about their competitive effects or the role retailers play in securing them in this article we consider a model in which two competing retailers make take it or leave it offers to a common manufacturer we find that upfront payments are a feature of equilibrium contracts and in all equilibria only one retailer buys from the manufacturer these findings support the claims of small manufacturers who argue that they are often unable to obtain widespread distribution for their products because of upfront payments copyright 2007 rand

network effects congestion externalities and air traffic delays or why not all delays are evil we examine two factors that explain air traffic congestion network benefits due to hubbing and congestion externalities while both factors impact congestion we find that the hubbing effect dominates empirically hub carriers incur most of the additional travel time from hubbing primarily because they cluster their flights in short time spans to provide passengers as many potential connections as possible with a minimum of waiting time non hub flights at the same hub airports operate with minimal additional travel time these results suggest that an optimal congestion tax might have a relatively small impact on flight patterns at hub airports jel l2 l5 l9 d6

another look at airport congestion pricing we study alternate approaches to implement congestion pricing at us airports conventional formulations toll all aircraft without determining whether a plane operated by a given airline delays other planes that it operates or planes operated by other airlines recent work points out optimal pricing calls for carriers to be charged only for the delay they impose on other airlines we find a small difference between the net benefits generated by the two congestion pricing policies because the bulk of airport delays are not internalized and because the efficiency loss from pricing internalized congestion is small jel l11 l93 r41

do carriers internalize congestion costs empirical evidence on the internalization question abstract economists have long suggested overhauling the existing u s airport landing departure fees to reflect market valuations of scarce runway capacity economists however do not agree on the optimal congestion based pricing scheme while some researchers advocate for a uniform congestion fee regardless of a carrier s airport market share others suggest that airport tolls should only reflect the congestion costs imposed on other carriers this paper uses ten years of ontime performance data to empirically determine if carriers internalize congestion costs while previous researchers e g mayer christopher sinai todd 2003a network effects congestion externalities and air traffic delays or why all delays are not evil american economic review 93 4 1194 1215 use excess travel time to measure flight delays the contribution of this paper is the addition of on time arrival and delay measures based on actual versus scheduled arrival and departure times we find that estimates based on these new delay measures reverse earlier findings by mayer and sinai 2003a network effects congestion externalities and air traffic delays or why all delays are not evil american economic review 93 4 1194 1215 and hence imply that carriers are not internalizing flight congestion costs

naked exclusion reply our one page reply to whinston and siegal s forthcoming aer article correcting and elaborating our 1991 aer article this abstract was borrowed from another version of this item