Aircraft Landing Fees: A Game Theory Approach

Discussion of airport pricing policy has largely centered on the problem of congestion, but at most airports congestion is negligible. In the present paper we explore the implications of an alternative pricing philosophy where the common costs of runway construction are shared among the different aircraft types according to a club principle. Linear programming and game theory techniques are used to clarify the notions of optimal runway size and fair and efficient landing fees, and to suggest new rules of thumb for allocating common costs based on the Shapley value and the nucleolus. The model is applied to Birmingham Airport to assess investment and pricing policy in 1968-1969. To the authors' knowledge this paper is the first explicit application of the "club principle" and the largest numerical application of game theory to date.