Matrix’s Dr. Ryan Booth published an article on airline pricing, called “Scarcity, Market Power, and Prices at Slot-constrained Airports: Evidence from Mexico City,” in the April 2019 edition of the Journal of Transport Economics and Policy. As he and his coauthors explain:

“Many of the world’s major airports are both slot-constrained, meaning that demand for take-offs and landings exceeds airport capacity at certain time periods, and concentrated, meaning that a single airline operates a large share of take-offs and landings. Slot constraints and slot concentration can each lead to higher average fares, but for different reasons that may require different policy prescriptions. In this article, we demonstrate how policy makers can differentiate between the effects of scarcity and concentration on prices, and we apply our methodology to a recent investigation into the allocation of take-off and landing slots at Mexico City’s airport.”

The authors use a difference-in-differences econometric framework to separately identify the effects of scarcity and slot concentration on airline prices. They conclude that the higher prices at Mexico City’s airport are driven by the scarcity of take-off and landing slots, not by the concentration of slots allocated to Mexico’s flagship airline, Aeromexico.

Dr. Booth co-authored the article with Ms. Almudena Arcelus, Dr. Aaron M. Fix, Dr. Jee-Yeon K. Lehmann, and Dr. Federico G. Mantovanelli of Analysis Group and Professor Robert S. Pindyck of MIT Sloan School of Management.

Click here to read the article.