Internalization of airport congestion: A network analysis

The theory developed in this paper, which generalizes the analysis of Brueckner (2002) [Brueckner, J.K., 2002. Airport congestion when carriers have market power. American Economic Review, 1357-1375], establishes a simple rule for the computation of airport congestion tolls, reflecting the internalization of congestion. The analysis shows that the toll paid by a carrier should equal the congestion damage from an extra flight times one minus the carrier's airport flight share. When this flight share is large, most of the congestion created by additional flight is internalized by the carrier, justifying a low toll, and conversely when the flight share is small. The rule is derived within a realistic network structure containing multiple hub airports.