Airport capacity and congestion when carriers have market power

Several authors recently pointed out that congestion pricing has no (or only partial) place at an airport when carriers have market power, since carriers themselves will internalize congestion. This article investigates the impact of such self-internalization on the airport, as this would effectively deprive the airport of an important source of funds for its capacity investment. We find that airline market structure has no impact on airport capacity and congestion for a welfare-maximizing airport that receives public subsidy, while somewhat surprisingly, both a private airport and a budget-constrained public airport would tend to over-invest in capacity when carriers have market power. (c) 2006 Elsevier Inc. All rights reserved.