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International Hub and Non-Hub Airports Pricing

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Document pages: 36 pages

Abstract: This study investigates congestion pricing of an international congested hub links foreign non-hub airports. The hub serves its home country’s dominant hub carrier and foreign airlines. Under symmetric non-hub airports and duopoly airline competition, we find the following: (i) To maximize its home country’s welfare, the int’l hub levies: a per-flight charge that includes “quarter” of congestion delay cost; a positive per-transfer passenger charge; a positive (a negative, resp.) per-departing passenger charge when the percentage of foreign passengers is large (small, resp.). (ii) To maximize a foreign country’s welfare, its non-hub airport levies: a per-flight charge that also include “quarter” of congestion delay cost even the non-hub itself suffer no congestion; an uniform per-departing charge on nonstop and one-stop passengers which can only correct the two markets inefficiencies in a weighted average level. (iii) The sum of the locally optimal per-flight charges, each maximizes the home country’ and foreign country’s welfare, respectively and non-cooperatively, is the same as the globally optimal per-flight charges under coordination. (iv) a non-hub’s discriminatory charges on nonstop and one-stop departing passengers can not only improve the non-hub country’s welfare but also maximize global welfare.

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