Airport congestion pricing when airlines price discriminate

This paper extends the literature on airport congestion pricing by allowing carriers to price-discriminate between the business and leisure passengers when operating costs are the same for all passengers. The main results are: First, the second-best discriminating business fare exceeds the first-best uniform fare (which equals the external part of the marginal congestion costs), while the second-best discriminating leisure fare is lower than the first-best uniform fare. Second, the optimal airport charge implements the first-best uniform or second-best discriminating fares. Importantly, this charge can always be higher than what would be expected when all passengers were treated as having the same time valuation. This result provides some support to the finding that the welfare losses associated with an atomistic airport congestion charge may be low. © 2014 Elsevier Ltd.