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Price discrimination by day-of-week of purchase: Evidence from the U.S. airline industry

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  • Puller, Steven L.
  • Taylor, Lisa M.

Abstract

This paper identifies a source of price discrimination utilized by airlines – price discrimination based on the day-of-the-week that a ticket is purchased. Using unique transaction data, we compare tickets on the same airline and route that are purchased on different days of the week, after controlling for the day of week of travel, the ticket restrictions, the demand characteristics of the flights, and the number of days in advance that the ticket is purchased. We find that fares are 5% lower when purchased on the weekend. We conjecture that this is a form of price discrimination. If airlines believe that weekend purchasers are more likely to be price-elastic leisure travelers, then they may offer lower prices on weekends when the mix of purchasing customers makes demand more price elastic. This conjecture is supported by the finding that the weekend purchase effect is distinctly larger on routes with a mixture of both business and leisure customers than on routes that disproportionately serve leisure customers. We illustrate that this pricing practice can have important impacts on airline profits. These results have implications for other industries that have the ability to change prices daily based upon the types of customers who purchase on a specific day.

Suggested Citation

  • Puller, Steven L. & Taylor, Lisa M., 2012. "Price discrimination by day-of-week of purchase: Evidence from the U.S. airline industry," Journal of Economic Behavior & Organization, Elsevier, vol. 84(3), pages 801-812.
  • Handle: RePEc:eee:jeborg:v:84:y:2012:i:3:p:801-812
    DOI: 10.1016/j.jebo.2012.09.022
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    References listed on IDEAS

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    1. Bilotkach, Volodymyr & Gorodnichenko, Yuriy & Talavera, Oleksandr, 2010. "Are airlines' price-setting strategies different?," Journal of Air Transport Management, Elsevier, vol. 16(1), pages 1-6.
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    8. Kristopher S. Gerardi & Adam Hale Shapiro, 2009. "Does Competition Reduce Price Dispersion? New Evidence from the Airline Industry," Journal of Political Economy, University of Chicago Press, vol. 117(1), pages 1-37, February.
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    Citations

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    Cited by:

    1. Stefano Carattini & Alessandro Tavoni, 2016. "How green are green economists?," Economics Bulletin, AccessEcon, vol. 36(4), pages 2311-2323.
    2. Miravete, Eugenio J & Seim, Katja & Thurk, Jeff, 2013. "Complexity, Efficiency, and Fairness of Multi-Product Monopoly Pricing," CEPR Discussion Papers 9641, C.E.P.R. Discussion Papers.
    3. Moreno-Izquierdo, L. & Ramón-Rodríguez, A. & Perles Ribes, J., 2015. "The impact of the internet on the pricing strategies of the European low cost airlines," European Journal of Operational Research, Elsevier, vol. 246(2), pages 651-660.
    4. Stefano Carattini & Alessandro Tavoni, 2016. "How green are economists?," GRI Working Papers 247, Grantham Research Institute on Climate Change and the Environment.
    5. repec:eee:jaitra:v:64:y:2017:i:pa:p:91-99 is not listed on IDEAS
    6. Domínguez-Menchero, J. Santos & Rivera, Javier & Torres-Manzanera, Emilio, 2014. "Optimal purchase timing in the airline market," Journal of Air Transport Management, Elsevier, vol. 40(C), pages 137-143.
    7. Hotle, Susan L. & Castillo, Marco & Garrow, Laurie A. & Higgins, Matthew J., 2015. "The impact of advance purchase deadlines on airline consumers’ search and purchase behaviors," Transportation Research Part A: Policy and Practice, Elsevier, vol. 82(C), pages 1-16.
    8. repec:eee:retrec:v:62:y:2017:i:c:p:37-43 is not listed on IDEAS
    9. Stacey, Brian, 2015. "Airline Price Discrimination," MPRA Paper 69168, University Library of Munich, Germany.

    More about this item

    Keywords

    Price discrimination; Airline pricing;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L8 - Industrial Organization - - Industry Studies: Services
    • L9 - Industrial Organization - - Industry Studies: Transportation and Utilities

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