Introducing competition through auctions in the air traffic control market

We focus on the potential outcomes of introducing competition for the market in air traffic control in Europe. We develop a two-stage, network congestion auction game in which multiple air navigation service providers bid to serve Member State airspaces. Airlines subsequently choose their optimal flight paths such that they minimize their operating costs. The individual Member States set up simultaneous auctions in which they specify minimum service levels and the rules of the auction, such as the right to increase charges as a function of service levels. The winners of the auctions are the service providers that bid and commit to the lowest per km charge. The results suggest that introducing competition for the market via outsourcing service provision may reduce charges by up to half the current levels provided there are sufficient bidders. It would also appear that auctioning the service may lead to defragmentation of the European system as companies win multiple auctions.