http://www.usatoday.com/travel/flights/2008-02-25-airport-incentives_N.htm

Boston’s Logan airport is in a city in which many site-seeing places are available.  However, the city is realizing that it is missing out on a lot of business simply because they do not offer any non-stop flights to Asia, Latin America, Africa, or the Middle-East.  This forces people to take connecting flights, which often people do not do out of laziness or extra cost of money. 

Logan airport has identified this problem and is offering “financial incentives for airlines to begin or expand service.”  However, with the skyrocketing fuel prices, airlines are skeptical about adding more routes.  Many airports have given incentives in the past such as reducing landing fees, rents, and chipping in on advertising to attract people to international destinations.

Airport executives claim that these added incentives help to open up more choices for the customer, stimulate the local economy, and help reduce fares due to the added competition.  The article claims that financial incentive programs have been around for a while, but with the increase in competition among airports, they are becoming more widespread.  The article claims that “incentives can ‘tip the scale’ in airline service decisions.”  It also claims that airport incentives have been helpful in helping airports that are steadily losing service to stay in business.  

This article is particularly interesting in the context of this class.  This is clearly a case of trying to achieve Nash Equilibrium.  We can think of this as the transportation/traffic networks that we learned in class.  People need to get from one place to another and must choose their route, or in this case, which airport to use that will take them to their destination.  With the new incentive program, new routes are available to travelers in which their payoff maybe increased from their current routes used.  As long as there is incentive for a person to choose a different airport, equilibrium has not been reached.  These incentive programs that airports are institutionalizing are doing just that: adding incentives for people to change from their current routes to a new route.  The new route may be from a closer airport than previously, the fare may be lower, or the flight may be non-stop instead of with layovers.  Whatever the case, these incentives increase the payoff for customers which cause customers to switch routes (airports).  As long as customers are finding incentive to switch, equilibrium has not been reached and airports start competing over customers’ business.  This added competition among airports also helps to drive down prices as airports try to undercut their competitor airports’ prices/routes to draw in business.  This also relates to some of the competition that we have been discussing in class.  Airports are competing to get the business of customers by lowering fares to stay in competition with their competitors (similar to how traders in trading networks decrease their ask prices to compete for business of the buyer).  This added competition serves to drive down prices.