Congestion and Market Structure in the Airline Industry

Empirical research on the relationship between market congestion and themarket competitive level largely falsifies the positive relationshippredicted by theoretical models. In this paper, I exploit the airlineindustry network structure and focus on the level of congestion duringperiods in which passengers cross-connect to their final destinations.About 70% of hub airport flights depart or land during these periods.The empirical analysis establishes a strong positive relationship.Furthermore, based on a simple theoretical model, I am able to quantifythe potential time savings from eliminating congestion externalities andfind that, on average, a flight can save 2 minutes of flight time at itsdeparting airport and another 1.5 minutes at its destination airport. Ialso find that airlines choose to pad their schedule particularly oncompetitive routes, presumably to attract uninformed passengers.