An Auction at LaGuardia
Questions and Issues Related to
Auction Design
Karla Hoffman
Systems Engineering and Operations Research Department
George Mason University
khoffman@gmu.edu
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There are two critical points in
every aerial flight -- its beginning
and its end.
— Alexander Graham Bell, 1906.
It only takes five years to go from
rumor to standard operating
procedure.
— Dick Markgraf
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Agenda
F What are the goals?
F What is being auctioned?
F What are the property rights associated with sale?
F What are the restrictions/conditions associated with
secondary trading?
F Auction details
F How often does the auction take place?
F How are the revenues to be used?
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What are the Goals of the Auction?
F Decrease passenger delay
F Provide more predictability
F Increase passenger throughput
F Provide incentives to increase future capacity
KImprove infrastructure
KProvide incentives for better airspace use
F Allow new entrants
KMay reduce airfares due to competition
F Assure access from LGA to smaller communities
F Revenue generation
KFor what purpose?
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What is a slot?
F What is a “slot”?
K “Slot” = “a reservation for an instrument flight rule takeoff or
landing by an air carrier of an aircraft in air transportation.”
F Right to land or take off:
K within a given period of time (e.g. 15 minute period)
K At a specific airport
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What are the Property Rights that Go Along with a
Slot?
F Use of the Airport (gates, baggage facilities, ticketing)
F Length of lease must be specified – what happens at end of lease
(reverts to FAA, owned indefinitely given “proper” use?)
F Right to sell sub-lease use of slot for any portion of lease period
F Any restrictions on ownership?
K Cannot have leases on greater than x% of airport slots?
K Specific allocation for
• Small communities
• International treaties (not relevant to LGA)
• New entrants
F What happens when slot “not available” on day of operations?
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What should be Auctioned?
FAuction each arrival and each departure
slot?
KAirline may face exposure problem
FCouple an arrival with a departure?
KIf so, when must departure take place?
FMost general: Let bidder determine
(through combinatorial bidding)
KIs feasibility an issue?
KComplexity for bidder an issue?
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Slot Allocation: How much should be auctioned?
F What is the capacity at LaGuardia?
K Capacity will determine what is being auctioned
K But… capacity is currently not well- defined
F Depends on distribution of aircraft
F Depends on weather conditions (Visual Flight Rules
(VFR) versus Instrument Flight Rules (IFR))
F Is capacity known? (i.e. How should capacity be
measured?)
K Number of arrivals/departures
K Number of passengers served
K Capacity of airport and surroundings
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What Happens at Day of Operations?
F Dynamic system means there will still be some uncertainty
on day of operations
K Weather (on route, at LGA, at other airports)
K Maintenance and scheduling issues for airline
K Emergency issues at airport
F Approaches to resolve uncertainty:
K Collaborative Decision Making (CDM)
K Day-of-operations exchange
K Auction specifies
K Other
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Auction: When and how often?
F For long-term property rights;
K Airlines require relatively long planning horizons
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What Happens to the Revenue from Auction?
F Vouchers
K Makes current owners “whole”
K Must retain some revenue for
• Reduction in the number of slots available
• Cost of administering the auction and associated administrative issues
• Other?
F Replaces existing taxes
K Replaces airport landing fees
F Goes to infrastructure improvements
F Goes to airports
F Goes to US Treasury
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Auction Details I: General Principles
F Keep it as simple as possible
F Give bidders the information they need
Therefore:
F Price Discovery Necessary
K Activity rules necessary to assure price discovery occurs
F All items auctioned simultaneously
F Likely need for combinatorial auction of both fungible (substitutes)
and complementary goods
REMEMBER:
Auction frameworks exist as does software
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Auction Details II: Choosing an Auction Mechanism
F Alternative auction designs
K Non-package Simultaneous Multi-Round (SMR)
K Package-bidding Simultaneous Multi-Round (SMR)
K Combinatorial clock
• With or without proxy final round
F Must decide how much information is available to bidders
during auction
K Too much can lead to collusive behavior
K Too little and bidder does not know what to bid
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AUCTION DESIGN III: Other Issues
F Transitioning (Incumbency)
K Vouchers
K Phased in over a number of years
F Details matter
K Pricing
K Bidding language
K Tools for bidders
K Last-and-best
K Transparency
K Reproducibility
F Can auction handle complexities/characteristics of other airports?
F Legislative and rule-making issues
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Discussion
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