of Airport Landing Slots

Abstract: We investigate the competitive effects of exchanges or sales of airport landing slots. In our model, airlines with potentially asymmetric slot allocations must decide upon which routes to use their landing slots. When all airlines serve the same routes in a slot-constrained Cournot-Nash equilibrium, small changes in slot allocations among airlines do not affect the overall allocation of slots across routes or air fares. In a symmetric equilibrium where slot-holding airlines have the same number of slots, we find that an increase in the number of slot-holding airlines leads to higher social welfare and consumer surplus, although the number of served routes may decline. Under asymmetric slot allocations, larger slot holders serve “thin” demand routes that are not served by smaller slot holders. In this situation, transfers of slots from larger to smaller slot holders increase social welfare and consumer surplus, even though fewer routes may be served. More generally, our results suggest that increases in slot concentration are harmful to consumers and social welfare, although consumers on relatively thin routes may gain air transportation service as a result.

Quality Choice, Trade Policy, and Firm Incentives.

Quality choice is examined in a duopoly with one foreign and one domestic firm where consumers have similar preferences for quality but different preferences for brands. Firms make quality commitments prior to choosing price and policy intervention assumes several forms. The policy conclusions depend on whether firms face "set-up" costs in raising product quality. In the absence of set-up costs, both domestic and foreign firms make socially optimal quality choices. In the presence of set-up costs, the foreign firm, and often the domestic firm, sets quality below the socially optimal level. Incomplete information alters these conclusions, however. Copyright 1992 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

The Impact of Quotas and Tariffs on Strategic R&D Behavior.

Quotas and tariffs are compared in a two-stage Cournot duopoly game where R&D is chosen initially and output is selected subsequently. Imposing a quota at or below the free-trade import level results in either a pure-strategy or a mixed-strategy equilibrium. Compared to an equally restrictive tariff, a quota leads to higher domestic profits, but lower domestic output and R&D (in a pure-strategy equilibrium). Furthermore, a quota and a tariff may often produce opposite effects on domestic R&D. A quota set above the free-trade import level may become binding and may lead to multiple equilibria. Copyright 1991 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Antidumping Policy.

When an antidumping policy involves the imposition of duties, the threat of antidumping enforcement may alter strategic behavior under imperfect competition. This point is illustrated in a model where the foreign firm is a monopolist in its local market but competes with a domestic firm in the home country's market. The welfare effects of an antidumping policy are examined under quantity-setting and price-setting behavior with either perfect or imperfect substitutes. Imposing an antidumping policy frequently improves domestic welfare under quantity-setting behavior and typically worsens it under price-setting behavior. Surprisingly, foreign welfare may improve. Copyright 1993 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Competition for exclusive customers: comparing equilibrium and welfare under one-part and two-part pricing

This paper compares one-part and two-part pricing in a discrete-continuous choice model, providing more extensive welfare results than prior literature. Under two-part pricing, firms may set fixed fees with or without `unit-price commitment,' where the lack of unit-price commitment is consistent with `after-market monopolization.' We find that two-part pricing with unit-price commitment is firms' dominant unilateral and joint pricing policy. Two-part pricing without unit-price commitment is the least desirable policy from a welfare standpoint. Under appropriate conditions, one-part pricing produces the highest consumer and social welfare, but the lowest profits.

The Brattle Group

We review the different market monitoring and market-power mitigation policies that arise in world electricity markets. Regulators for electricity markets apparently respond to differences in underlying market structure and design features when choosing between ex-ante (that is, rule-based) behavioral restrictions as opposed to ex-post enforcement (that is, investigations and sanctions) as the principal means for deterring abuses of market power. Particular design features that influence market-monitoring policies are whether the market is one-part (energy only) versus two-part (energy and capacity), and whether there is centralized or bilateral trading. Information-disclosure requirements also are a key element of market monitoring.

Strategic Pricing when Electricity is Storable

In this paper, we develop a dynamic Bertrand model of competition among hydroelectric (hydro) generators. Unlike other competitors in electricity generation markets, hydro generators ’ current pricing decisions affect their future productive capacity through their impact on available water reserves. Our model assumes that each player uses a Markov strategy based on the current state of water reserves, and water replenishment is governed by a stochastic process. Our analysis develops useful insights for regulatory policy in predominantly hydro-based electricity markets, including the effect of strategic behavior on system reliability and dispatch efficiency, the impact of price caps, and the likelihood of collusion. 1