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Dynamic pricing and market segmentation responses to low-cost carrier entry

Author

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  • Varella, Rafael R.
  • Frazão, Jessica
  • Oliveira, Alessandro V.M.

Abstract

This paper develops an empirical model of online airfares to inspect the impact of the entry of a low-cost carrier (LCC). We utilize a database collected from the website of an online travel agent in Brazil. We test whether incumbents reshape their airfare temporal profiles in an attempt to attract the price-sensitive passengers who constitute the target market of the newcomer. Our results suggest that LCC entry partially spoils the existing market segmentation schemes of incumbents, forcing them to revise their distribution management strategy, simplify their fare structure and migrate from a non-monotonic to a weakly monotonic price curve.

Suggested Citation

  • Varella, Rafael R. & Frazão, Jessica & Oliveira, Alessandro V.M., 2017. "Dynamic pricing and market segmentation responses to low-cost carrier entry," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 98(C), pages 151-170.
  • Handle: RePEc:eee:transe:v:98:y:2017:i:c:p:151-170
    DOI: 10.1016/j.tre.2016.12.010
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    References listed on IDEAS

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    1. repec:eee:transe:v:109:y:2018:i:c:p:190-204 is not listed on IDEAS

    More about this item

    Keywords

    Airlines; Yield management; Distribution management; Online travel agency;

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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