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Dynamic Airline Pricing and Seat Availability

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Abstract

Airfares are determined by both intertemporal price discrimination and dynamic adjustment to stochastic demand. I estimate a model of dynamic airline pricing accounting for both forces with new flight-level data. With model estimates, I disentangle key interactions between the arrival pattern of consumer types and remaining capacity under stochastic demand. I show that the forces are complements in airline markets and lead to significantly higher revenues, as well as increased consumer surplus, compared to a more restrictive pricing regime. Finally, I show that abstracting from stochastic demand leads to a systematic bias in estimating demand elasticities.

Suggested Citation

  • Kevin R. Williams, 2017. "Dynamic Airline Pricing and Seat Availability," Cowles Foundation Discussion Papers 2103, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:2103
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    Cited by:

    1. Scott M. Kaplan, 2022. "Putting a price on popularity: Evidence from superstars in the National Basketball Association," Economic Inquiry, Western Economic Association International, vol. 60(3), pages 1357-1381, July.
    2. James D. Dana & Daniel J. Greenfield, 2019. "The Impact of Passenger Mix on Load Factors in the Airline Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 54(1), pages 111-127, February.
    3. Alderighi, Marco & Gaggero, Alberto A. & Piga, Claudio A., 2022. "Hidden prices with fixed inventory: Evidence from the airline industry," Transportation Research Part B: Methodological, Elsevier, vol. 157(C), pages 42-61.
    4. Siegert, Caspar & Ulbricht, Robert, 2020. "Dynamic oligopoly pricing: Evidence from the airline industry," International Journal of Industrial Organization, Elsevier, vol. 71(C).
    5. Giulio Giorgione & Francesco Ciari & Francesco Viti, 2020. "Dynamic Pricing on Round-Trip Carsharing Services: Travel Behavior and Equity Impact Analysis through an Agent-Based Simulation," Sustainability, MDPI, vol. 12(17), pages 1-23, August.
    6. Ambarish Chandra, 2020. "Price Discrimination along Multiple Dimensions: New Evidence from a Regional Airline," Working Papers tecipa-676, University of Toronto, Department of Economics.

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    More about this item

    Keywords

    Dynamic pricing; Intertemporal price discrimination; Price discrimination; Stochastic demand; Pricing; Airlines; Dynamic discrete choice;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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