Low-cost airlines and online price dispersion
AbstractThis paper presents a new form of online pricing tactic where airlines post, at the same time and for the same flight, fares in different currencies that violate the Law of One Price. Unexpectedly for an online market, price dispersion may be accompanied by a hidden discount that tends to persist in the period preceding a flight's departure. The econometric analysis reveals that airlines post dispersive fares in less competitive routes with more heterogeneous demand. Furthermore, temporal persistence of intra-firm fare dispersion suggests that it is an equilibrium phenomenon engendered by the airlines' need to manage stochastic demand conditions for a specific flight.
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Bibliographic InfoArticle provided by Elsevier in its journal International Journal of Industrial Organization.
Volume (Year): 29 (2011)
Issue (Month): 6 ()
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Web page: http://www.elsevier.com/locate/inca/505551
Law of One Price; Online pricing; Dispersion; Airlines; Search costs;
Find related papers by JEL classification:
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
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- Marco Alderighi & Marcella Nicolini & Claudio A. Piga, 2012.
"Combined Effects of Load Factors and Booking Time on Fares: Insights from the Yield Management of a Low-Cost Airline,"
Quaderni di Dipartimento
171, University of Pavia, Department of Economics and Quantitative Methods.
- Marco Alderighi & Marcella Nicolini & Claudio A. Piga, 2012. "Combined Effects of Load Factors and Booking Time on Fares: Insights from the Yield Management of a Low-Cost Airline," Working Papers 2012.14, Fondazione Eni Enrico Mattei.
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