ERBE 01 2 03
Scoring Auctions: Are They the Key to Market‐based Allocation of Airport Slots?
EDUARDO CARDADEIRO a and JOÃO GATA b
a Autónoma University of Lisbon and CICEE, Portugal. b REM/ISEG & GOVCOPP, Portugal
To cite this article:
Cardadeiro, E. & J. Gata. 2022. Scoring Auctions: Are They the Key to Marketbased Allocation of Airport Slots? European Review of Business Economics I(2): 59-76.
DOI: https://doi.org/10.26619/ERBE-2021.I.2.3
Received: 7 January 2022. Accepted 31 May 2022. Published: 30 June 2022
Language: English
Abstract
Air transport has increased almost fifteen-fold worldwide in the last half-century (1970- 2019) and is expected to return to this trend in the next few years, after falling from 4.558 billion passengers in 2019 to 1.809 billion passengers in 2020 due to the Covid-19 pandemic. Airport capacity has not kept pace with such growth and, therefore, more than two hundred major airports worldwide face capacity constraints and are “coordinated”. Efficient allocation of scarce airport capacity is critical for air traffic growth, as well as for the overall air transport dynamic efficiency. However, the allocation of airport slots in Europe and elsewhere is still ruled by administrative processes, based on the IATA Worldwide Slot Guidelines, which follow historical precedence (called “Grandfather Rights”) and time adjustments of historical slots. Several objections have been raised to
the adoption of market mechanisms in slot allocation, as an alternative to administrative processes, and they are still rarely used. Despite often being suggested in the literature, the use of auctions for slot allocation has only been implemented in some local routes in China, and apparently this underemployment of auction mechanisms has been due to the reluctance of coordination authorities to face the risks that have been pointed out regarding airlines’ long-term route planning, the usage costs related to excess slots, origin-destination pairing, and competition distortions. However, scoring auctions have never been considered and our research shows that their properties combined with an appropriate auction design could overcome most of those objections and mitigate the associated risks. Furthermore, the current drop in air traffic provides an opportune window for the introduction of auctions as a mechanism for the allocation of airport slots with minimal risks of disruption to airline business models.
Keywords
Asker, J., & Cantillon, E. (2008). Properties of scoring auctions. RAND Journal of Economics (Wiley-Blackwell), 39(1), 69-85.
ATAG (2020). Aviation Benefits beyond Borders. Air Transport Action Group, Geneva, Switzerland. Ausubel, L. M. (2004). An Efficient Ascending-Bid Auction for Multiple Objects. American Economic Review, 94(5), 1452-1475.
Ausubel, L., Cramton, P. and Milgrom, P. 2006. The Clock-Proxy Auction: A Practical Combinatorial Auction Design. In Peter Cramton, Yoav Shoham, and Richard Steinberg (eds.), CF, Chapter 5, 115-138.
Ausubel, L.M. and Milgrom, P. (2002). ‘Ascending auctions with package bidding’, Frontiers of Theoretical Economics, vol. 1(1), pp. 1-41.
Avenali, A., D’Alfonso, T., Leporelli, C., Matteucci, G., Nastasi, A., & Reverberi, P. (2015). An incentive pricing mechanism for efficient airport slot allocation in Europe. Journal of Air Transport Management, 42, 27-36
Ball, M. O., Berardino, F., & Hansen, M. (2018). The use of auctions for allocating airport access rights. Transportation Research Part A, 114(Part A), 186–202.
Ball, M. O., Estes, A. S., Hansen, M., & Liu, Y. (2020). Quantity-Contingent Auctions and Allocation of Airport Slots. Transportation Science, 54(4), 858-881.
Bana E Costa, C. A., & Vansnick, J.-C. (1994). MACBETH — An Interactive Path Towards the Construction of Cardinal Value Functions. International Transactions in Operational Research, 1(4), 489-500.
Bana E Costa, C. A., De Corte, J.-M., & Vansnick, J.-C. (2012). MACBETH. INTERNATIONAL JOURNAL OF INFORMATION TECHNOLOGY & DECISION MAKING, 11(2), 359–387.
Basso, L. J., & Zhang, A. (2010). Pricing vs. slot policies when airport profits matter. Transportation Research Part B, 44(3), 381-391.
Bilotkach, V., & Hüschelrath, K. (2013). Airline Alliances, Antitrust Immunity, and Market Foreclosure. Review of Economics & Statistics, 95(4), 1368-1385.
Branco, F. (1997). The design of multidimensional auctions. RAND Journal of Economics (RAND Journal of Economics), 28(1), 63-81
Brueckner, J. K. (2009). Price vs. quantity-based approaches to airport congestion management. Journal of Public Economics, 93(5), 681-690.
Button, K. (2008). Auctions – What Can We Learn from Action Theory for Slot Allocation?. In A. I. Czerny, P. Forsyth, D. Gillen, & H.-M. Niemeier (Eds.), Airport slots: International Experiences and Options for reform. Aldershot, UK: Ashgate, 291309.
Che, Yeon-Koo (1993). Design competition through multidimensional auctions. RAND Journal of Economics, 24(4), 668-680.
Chetan, T. G., Jenamani, M., & Sarmah, S. P. (2019). Two-Stage Multi-attribute Auction Mechanism for Price Discovery and Winner Determination. IEEE Trans. Eng. Manage, 66(1), 112-126.
Cramton, P., Shoham, Y. & Steinberg, R. (2005). Combinatorial Auctions. MIT Press.
Czerny, A. I. (2010). Airport congestion management under uncertainty. Transportation Research Part B, 44(3), 371-380.
Czerny, A. I., & Zhang, A. (2014). Airport congestion pricing when airlines price discriminate. Transportation Research Part B, 65, 77-89.
Daniel, J. I. (2011). Congestion pricing of Canadian airports. CANADIAN JOURNAL OF ECONOMICS-REVUE CANADIENNE D ECONOMIQUE, 44(1), 290-324.
Daniel, J. I. (2014). The untolled problems with airport slot constraints. Economics of Transportation, 3(1), 16-28.
Dastidar, K.G. (2014). Scoring Auctions: A Brief Survey. Studies in Microeconomics. 2(1): 35-48.
Day, R. W., & Cramton, P. (2012). Quadratic Core-Selecting Payment Rules for Combinatorial Auctions. OPERATIONS RESEARCH, 60(3), 588-603.
Day, R., & Milgrom, P. (2008). Core-selecting package auctions. International Journal of Game Theory, 36(3-4), 393-407.
de Wit, J., & Burghouwt, G. (2008). Slot allocation and use at hub airports, perspectives for secondary trading. EUROPEAN JOURNAL OF TRANSPORT AND INFRASTRUCTURE RESEARCH, 8(2), 147-163.
DotEcon (2001). Auctioning Airport Slots, a report for HM Treasury and the Department of the Environment, Transport and the Regions, DotEcon Ltd, January 2001.
Eurocontrol (2021). EUROCONTROL Forecast Update 2021-2027, Eurocontrol, October 2021.
Fairbrother, J., Zografos, K. G., & Glazebrook, K. D. (2020). A Slot-Scheduling Mechanism at Congested Airports that Incorporates Efficiency, Fairness, and Airline Preferences. Transportation Science, 54(1), 115-138.
Forsyth, Peter (2008). Airport Slots. Perspectives and policies. In A. I. Czerny, P. Forsyth, D. Gillen, & H.-M Niemeier (Eds.), Airport slots: International Experiences and Options for reform. Aldershot, UK: Ashgate, 379-405.
Forsyth, P. and Niemeier, H-M. (2008). Prices and Regulation in Slot Constrained Airports. In A. I. Czerny, P. Forsyth, D. Gillen, & H.-M. Niemeier (Eds.), Airport slots: International Experiences and Options for reform. Aldershot, UK: Ashgate, 379-405.
Gillen, D., & Morrison, W. G. (2008). Slots and competition policy. In A. I. Czerny, P. Forsyth, D. Gillen, & H.-M. Niemeier (Eds.), Airport slots: International Experiences and Options for reform. Aldershot, UK: Ashgate, 173-191.
ICAO (2021). ICAO long-term forecasts. International Civil Aviation Organization, Québec, Canada.
IATA (2020). Worldwide Airport Slot Guidelines. ACI, IATA and WWACG, Montreal – Geneva.
Jiang, Y., & Zografos, K. G. (2021). A decision making framework for incorporating fairness in allocating slots at capacity-constrained airports. Transportation Research Part C, 126, 1-19.
Jorge, D., Antunes Ribeiro, N., & Pais Antunes, A. (2021). Towards a decision-support tool for airport slot allocation: Application to Guarulhos (Sao Paulo, Brazil). Journal of Air Transport Management, 93, 1-16.
Katsigiannis, F. A., & Zografos, K. G. (2021). Optimising airport slot allocation considering flightscheduling flexibility and total airport capacity constraints. Transportation Research Part B, 146, 50-87.
Katsigiannis, F. A., Zografos, K. G., & Fairbrother, J. (2021). Modelling and solving the airport slotscheduling problem with multi objective, multi-level considerations. Transportation Research Part C, 124, 1-24.
Liu, S., Li, J., & Liu, D. (2012). Multi-attribute procurement auctions with risk averse suppliers. ECONOMICS LETTERS, 115(3), 408-411.
Madas, M. A., & Zografos, K. G. (2008). Airport capacity vs. demand: Mismatch or mismanagement? Transportation Research Part A, 42(1), 203-226.
Mayo, J. W., & Sappington, D. E. M. (2016). When do auctions ensure the welfare-maximizing allocation of scarce inputs? RAND Journal of Economics (Wiley-Blackwell), 47(1), 186–206.
Milgrom, P. (2021). Auction Research Evolving: Theorems and Market Designs. American Economic Review, 111(5), 1383-1405.
NERA. (2004). Study to assess the effects of different slot allocation schemes. A Report for the European Commission, DG TREN.
Nishimura, T. (2015). Optimal design of scoring auctions with multidimensional quality. Review of Economic Design, 19(2), 117-143.
Noto, C. (2020). Airport slots, secondary trading, and congestion pricing at an airport with a dominant network airline. Research in Transportation Economics, 79, 1-14.
Pickett, L. and Hirst, D. (2020). Airport Slots. House of Commons Library, Briefing Paper No. 9062, 27 November.
Rassenti, S. J., Smith, V. L., & Bulfin, R. L. (1982). A combinatorial auction mechanism for airport time slot allocation. Bell Journal of Economics, 13(2), 402-417.
Ribeiro, N. A., Jacquillat, A., Antunes, A. P., & Odoni, A. (2019). Improving slot allocation at Level 3 airports. Transportation Research Part A, 127, 32-54.
Sentance, A. (2003). Airport slot auctions: desirable or feasible? Utilities Policy, 11(1), 53-57.
Sheng, D., Li, Z.-C., Xiao, Y., & Fu, X. (2015). Slot auction in an airport network with demand uncertainty. Transportation Research Part E, 82, 79-100.
Steiner, P. O. (1957). Peak Loads and Efficiency Pricing, Quarterly Journal of Economics, 71, November, pp. 585-610.
Verhoef, E. T. (2010). Congestion pricing, slot sales and slot trading in aviation. Transportation Research Part B, 44(3), 320-329.
Vickrey, W. (1961). Counterspeculation, Auctions, and Competitive Sealed Tenders. Journal of Finance (Wiley-Blackwell), 16(1), 8-37.
Vieira, A. C. L., Oliveira, M. D., & Bana e Costa, C. A. (2020). Enhancing knowledge construction processes within multicriteria decision analysis: The Collaborative Value Modelling framework. Omega, 94, 1-15.
Wang, M., & Liu, S. (2014). Equilibrium bids in practical multi-attribute auctions. ECONOMICS LETTERS, 123(3), 352-355.
World Bank (2021). https://data.worldbank.org/indicator/IS.AIR.PSGR (21/12/09).
Zografos, K. G., & Jiang, Y. (2019). A Bi-objective efficiency-fairness model for scheduling slots at congested airports. Transportation Research Part C, 102, 336-350.
Zografos, K. G., Madas, M. A., & Androutsopoulos, K. N. (2017). Increasing airport capacity utilisation through optimum slot scheduling: review of current developments and identification of future needs. Journal of Scheduling, 20(1), 3-24.
Zografos, K. G., Salouras, Y., & Madas, M. A. (2012). Dealing with the efficient allocation of scarce resources at congested airports. Transportation Research Part C, 21(1), 244-256
