APCAP · New markets: Structural analysis and Mechanism design, with applications to airport capacity problems

Our economy relies on auctions to efficiently allocate scarce resources, and we use auction models to understand competition in bidding markets. However, traditional auction analysis is limited to existing mechanisms as it relies on bid data to estimate firms' latent values. Instead, APCAP proposes to study the welfare effects of implementing auctions in new markets. Auction values are characterized based on the profits generated from auctioned items and can be estimated using appropriate demand and supply models, bridging two disconnected strands of research in Industrial Organization. This idea is used to study various angles of the pressing airport capacity problem and how to best allocate scarce airport slots to competing airlines. New structural models and estimation techniques are developed to capture the complexities of this issue, made possible by unique access to highly detailed datasets.- Project 1 considers the endogenous formation of a product network with spillovers in costs and demand (to quantify how airlines respond to shocks) and shows how to estimate such a model when entry barriers constrain the observed network. The model estimates highlight the role of capacity constraints in network formation and help understand the competitive pressure of low-cost carriers in slot auctions.- Project 2 captures the differential impacts of extending vs. optimizing existing airport capacity while endogenizing the intensive margin of delays, flight cancellations, and emissions. An estimation strategy is developed to estimate demand when observing only aggregate prices.- Project 3 estimates the magnitude and drivers of slot synergies and uses computer science techniques to assess the welfare impacts of large-scale slot auctions.- A transversal project leverages these methods and data to provide insight into the understudied European airline industry, as well as how auction impacts vary depending on the market structure and (demand) factors local to an airport.