Opinion ID: 150469
Heading Depth: 2
Heading Rank: 1

Heading: The Problem of Congestion

Text: In the 12 years between the promulgation of the 1996 Policy and of the 2008 Amendments, the number of landings by airlines in the United States increased more than 25%, to 10.3 million from 8.2 million per year. See Bureau of Transportation Statistics, National Transportation Statistics, Table 1-34 (April 2010). [] This increase in traffic has led to more frequent and longer delays; in 2007, for instance, flight arrivals were delayed by a total of 4.3 million hours. U.S. Congress Joint Economic Committee, Report, Your Flight Has Been Delayed Again: Flight Delays Cost Passengers, Airlines, and the U.S. Economy Billions 1 (May 22, 2008). The causes for delay range from inclement weather to mechanical problems; this case involves delays caused by excess demand for airport takeoff and landing capacity.
Excess demand arises when demand for a good or service at the prevailing price exceeds the supply, which results in would-be buyers having to queue. In the air transportation system, the buyers are airlines, the service is allowing an aircraft to land at a particular airport, and the price is the landing fee the airport charges the airline for landing. The delays in landing are manifestations of there being a queue. In an ordinary market, supply and price adjust to eliminate excess demand, but this is no ordinary market. Airports cannot readily increase the supply of landing slots because building more runways takes years and at some airports is not feasible at all. See Policy Regarding Airport Rates and Charges, 73 Fed.Reg. 3310, 3312/3 (proposed Jan. 17, 2008). Nor may airports freely increase the price as demand increases; the amount an airport may charge as a landing fee is constrained by the oversight of the DOT and by several federal statutory restrictions. Adding to the difficulty of managing congestion, the volume of air traffic varies significantly both throughout the day and from one airport to another. Not all airports suffer from significant congestion, even at the most desirable times (or rush hours). Addressing this variation in the demand for landings requires giving airports some flexibility in rate-setting.
There are two ways in which an airport might increase its landing fee to the market-clearing levelthat is, to the price just high enough to eliminate the excess demand and hence the queue at peak times. The first is to sell at auction the right to land an aircraft at a particular airport at a particular time; that right is called a landing slot. In an auction an airport would first determine the number of landings it can accommodate during a given period of time, such as an hour, and then allow airlines to bid for each slot in an auction; the winning bid would determine the price of the landing slot. The alternative is congestion pricing, which entails the airport itself increasing the price (landing fee) until it elicits demand for only as many landings as it can accommodate, thereby eliminating queuing and delay. Both a slot auction and congestion pricing will converge upon the same price and the same quantity. In principle neither system is preferable to the other. See Martin L. Weitzman, Prices v. Quantities, 41 Rev. Econ. Stud. 477 (1974). Many commentators, however, have advocated slot auctions rather than congestion pricing because an airport operator knows how many landings the airport can safely accommodate per hour but can learn only by trial and error what fee will yield that many landings. See, e.g., S.J. Rassenti et al., A Combinatorial Auction Mechanism for Airport Time Slot Allocation, 13 Bell J. Econ. 402 (1982); D. Grether et al., The Allocation of Landing Rights by Unanimity Among Competitors, 71 Am. Econ. Rev. 170, 170-71 (1981). But see Michael E. Levine, Landing Fees and the Airport Congestion Problem, 12 J.L. & Econ. 79 (1969) (proposing a system of congestion pricing). The regulations under review represent the DOT's attempt to implement a system of congestion pricing. []