Opinion ID: 150469
Heading Depth: 3
Heading Rank: 2

Heading: Possible Solutions

Text: 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. []