Airport congestion pricing has often been advocated as a means of controlling demand for airportoperations and for achieving efficient resource allocation. Competition between airlines affects the extent to whichan airline would be willing to pay for airport slots. Accurate modeling of competition is critical in order to determinethe effectiveness of a congestion pricing mechanism. We develop an equilibrium model of airline frequencycompetition in the presence of delay costs and congestion prices. Using a small hypothetical network, we evaluatethe impacts of congestion prices on the various stakeholders and investigate the dependence of effectiveness ofcongestion pricing on the characteristics of frequency competition in individual markets. We find that theeffectiveness of congestion pricing critically depends on three essential parameters of frequency competition. Ourresults show that variation in the number of passengers per flight plays a vital role in determining the degree ofattractiveness of congestion pricing to the airlines. A significant part of the impact of congestion pricing cannot beaccounted for using the models in prior literature, which are based on the assumptions of constant load factors andconstant aircraft sizes. Further, we find that, in comparison to flat pricing, marginal cost pricing is more effective inreducing congestion without penalizing the airlines with exceedingly high congestion prices.Draft completed August 29th, 2011.
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