18 - A Combinatorial Auction Mechanism for Airport Time Slot Allocation

Summary

The Problem of Allocating Airport Slots

In 1968 the FAA adopted a high density rule for the allocation of scarce landing and take-off slots at four major airports (La Guardia,Washington National, Kennedy International, and O'Hare International). This rule establishes slot quotas for the control of airspace congestion at these airports.

Airport runway slots, regulated by these quotas, have a distinguishing feature which any proposed allocation procedure must accommodate: an airline's demand for a takeoff slot at a flight originating airport is not independent of its demand for a landing slot at the flight destination airport. Indeed, a given flight may take off and land in a sequence of several connected demand interdependent legs. For economic efficiency it is desirable to develop an airport slot allocation procedure that allocates individual slots to those airline flights for which the demand (willingness to pay) is greatest.

Grether, Isaac, and Plott (hereafter, GIP) (1979, 1981) have proposed a practical market procedure for achieving this goal. Their procedure is based upon the growing body of experimental evidence on the performance of (1) the competitive (uniform price) sealed-bid auction and (2) the oral double auction such as is used on the organized stock and commodity exchanges. Under their proposal an independent primary market for slots at each airport would be organized as a sealed-bid competitive auction at timely intervals. Since the primary market allocation does not make provision for slot demand interdependence, a computerized form of the oral double auction (with block transaction capabilities) is proposed as an “after market” to allow airlines to purchase freely and sell primary market slots to each other. This continuous after market exchange would provide the institutional means by which individual airlines would acquire those slot packages which support their individual flight schedules. Thus, an airline that acquired slots at Washington National which did not flight-match the slots acquired at O'Hare could either buy additional O'Hare slots or sell its excess Washington slots in the after market.