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

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

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.

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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 84 (2012)
Issue (Month): 3 ()
Pages: 801-812

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Handle: RePEc:eee:jeborg:v:84:y:2012:i:3:p:801-812
Contact details of provider: Web page: http://www.elsevier.com/locate/jebo

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  1. Gale, Ian L & Holmes, Thomas J, 1993. "Advance-Purchase Discounts and Monopoly Allocation of Capacity," American Economic Review, American Economic Association, vol. 83(1), pages 135-46, March.
  2. Steven L. Puller & Anirban Sengupta & Steven N. Wiggins, 2009. "Testing Theories of Scarcity Pricing in the Airline Industry," NBER Working Papers 15555, National Bureau of Economic Research, Inc.
  3. Borenstein, Severin & Rose, Nancy L, 1994. "Competition and Price Dispersion in the U.S. Airline Industry," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 653-83, August.
  4. Mantin, Benny & Koo, Bonwoo, 2010. "Weekend effect in airfare pricing," Journal of Air Transport Management, Elsevier, vol. 16(1), pages 48-50.
  5. Volodymyr Bilotkach & Yuriy Gorodnichenko & Oleksandr Talavera & Igor Zubenko, 2006. "Are Airlines' Price-Setting Strategies Different?," Discussion Papers of DIW Berlin 645, DIW Berlin, German Institute for Economic Research.
  6. James D. Dana & Jr., 1998. "Advance-Purchase Discounts and Price Discrimination in Competitive Markets," Journal of Political Economy, University of Chicago Press, vol. 106(2), pages 395-422, April.
  7. Steven Berry & Panle Jia, 2010. "Tracing the Woes: An Empirical Analysis of the Airline Industry," American Economic Journal: Microeconomics, American Economic Association, vol. 2(3), pages 1-43, August.
  8. 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.
  9. 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, 02.
  10. Pels, Eric & Rietveld, Piet, 2004. "Airline pricing behaviour in the London–Paris market," Journal of Air Transport Management, Elsevier, vol. 10(4), pages 277-281.
  11. Gale, Ian L. & Holmes, Thomas J., 1992. "The efficiency of advance-purchase discounts in the presence of aggregate demand uncertainty," International Journal of Industrial Organization, Elsevier, vol. 10(3), pages 413-437, September.
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