Bundling in Advance Sales: Theory and Evidence from Round‐Trip versus Two One‐Way Tickets

Diego Escobari, Paan Jindapon and Nicholas Rupp

Journal of Industrial Economics, 2024, vol. 72, issue 4, 1369-1396

Abstract: We theoretically derive an optimal price for a bundle of two goods that are sold in advance to risk‐averse buyers. The theory predicts that a round‐trip ticket is less expensive than two one‐way tickets when demands for the outbound and the inbound are uncertain and positively correlated. Using a unique airlines dataset, we find evidence that is consistent with the theory; round‐trip bundle discounts exist and they are larger for passengers who buy early in advance, stay on a Saturday night, and have higher valuations. We also find that the bundle discounts decrease with competition.

Date: 2024
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