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Dynamic Oligopoly Pricing: Evidence from the Airline Industry

  • Siegert, Caspar
  • Ulbricht, Robert

We explore how pricing dynamics in the European airline industry vary with competition and document patterns that are consistent with intertemporal price discrimination. First, the rate at which prices increase over time decreases in competition, supporting the idea that competition restrains the ability of airlines to price-discriminate against late-arriving customers. Second, the sensitivity to competition increases in the heterogeneity of the customer base, reflecting that restraints on price discrimination are only relevant when there is initial scope for discrimination. The patterns explain 83 percent of the observed within-flight price dispersion and 17 percent of the cross-market variation in pricing dynamics.

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Paper provided by Toulouse School of Economics (TSE) in its series TSE Working Papers with number 14-478.

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Date of creation: 23 Mar 2014
Date of revision: 18 Nov 2015
Handle: RePEc:tse:wpaper:28015
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  1. Igal Hendel & Aviv Nevo, 2013. "Intertemporal Price Discrimination in Storable Goods Markets," American Economic Review, American Economic Association, vol. 103(7), pages 2722-51, December.
  2. 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.
  3. Gale, I.L. & Holmes, T.J., 1990. "Advance-Purchase Discounts And Monopoly Allocation Of Capacity," Working papers 9005, Wisconsin Madison - Social Systems.
  4. Jan K. Brueckner & Nichola J. Dyer & Pablo T. Spiller, 1992. "Fare Determination in Airline Hub-and-Spoke Networks," RAND Journal of Economics, The RAND Corporation, vol. 23(3), pages 309-333, Autumn.
  5. Pascal Courty & Mario Pagliero, 2009. "The Impact of Price Discrimination on Revenue: Evidence from the Concert Industry," Economics Working Papers ECO2009/04, European University Institute.
  6. Dana, James D, Jr, 2001. "Monopoly Price Dispersion under Demand Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(3), pages 649-70, August.
  7. Phillip Leslie, 2004. "Price Discrimination in Broadway Theater," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 520-541, Autumn.
  8. James D. Dana Jr., 1999. "Using Yield Management to Shift Demand When the Peak Time is Unknown," RAND Journal of Economics, The RAND Corporation, vol. 30(3), pages 456-474, Autumn.
  9. Austan Goolsbee & Chad Syverson, 2005. "How do Incumbents Respond to the Threat of Entry? Evidence from the Major Airlines," NBER Working Papers 11072, National Bureau of Economic Research, Inc.
  10. Alberto A. Gaggero & Claudio A. Piga, 2009. "Airline Market Power and Intertemporal Price Dispersion," Discussion Paper Series 2009_10, Department of Economics, Loughborough University, revised Jul 2009.
  11. Harikesh Nair, 2007. "Intertemporal price discrimination with forward-looking consumers: Application to the US market for console video-games," Quantitative Marketing and Economics (QME), Springer, vol. 5(3), pages 239-292, September.
  12. 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.
  13. 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.
  14. Kathy J. Hayes & Leola B. Ross, 1998. "Is Airline Price Dispersion the Result of Careful Planning or Competitive Forces?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 13(5), pages 523-541, October.
  15. Severin Borenstein, 1985. "Price Discrimination in Free-Entry Markets," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 380-397, Autumn.
  16. Holmes, Thomas J, 1989. "The Effects of Third-Degree Price Discrimination in Oligopoly," American Economic Review, American Economic Association, vol. 79(1), pages 244-50, March.
  17. Escobari, Diego, 2011. "Dynamic Pricing, Advance Sales, and Aggregate Demand Learning in Airlines," MPRA Paper 38509, University Library of Munich, Germany.
  18. 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.
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