Case Study
MEMORANDUM
TO: Secretary Elizabeth Dole, Department of Transportation
FROM:
DATE: December 4, 2000
SUBJECT: Recommendation that the Department of Transportation should implement a competitive market system of slot allocation as a means of achieving efficiency. In this scheme, supply and demand determines the market price for slots, resulting in an optimal price and output of landing slots for all airlines.
SUMMARY
This policy memo recommends shifting to a market system of slot allocation. Airport deregulation and various other issues have led the FAA and the Department of Transportation to make a decision to resolve competing demands for airport slots. This analysis describes options ranging from auctions to ?grandfathering,? allowing airlines that had based decisions on large amounts of slots to avoid disruption. Implementing a solution that encompasses the auctioning off of slots in an effective manner and then shifting to a market system is clearly the most socially efficient solution. In order to gain the support of large incumbent airlines it has been suggested that those airlines receive discounted prices at the time of the auction ensuring equity and efficiency.
PROBLEM
The Federal Aviation Administration (FAA) coined the term a landing ?slot? to describe the right of an airplane to land at an
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