Organizational Structure and Pricing: Evidence from a Large U.S. Airline

Ali Hortascu, Olivia R. Natan, Hayden Parsley, Timothy Schwieg and Kevin R. Williams ()
Additional contact information
Ali Hortascu: University of Chicago and NBER
Olivia R. Natan: University of California, Berkeley
Hayden Parsley: University of Texas, Austin
Timothy Schwieg: University of Chicago, Booth
Kevin R. Williams: Cowles Foundation, Yale University, https://som.yale.edu/faculty/kevin-r-williams

No 2312R2, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: Firms often involve multiple departments for critical decisions that may result in coordination failures. Using data from a large U.S. airline, we document the presence of important pricing biases that differ significantly from dynamically optimal profit maximization. However, these biases can be rationalized as a Òsecond-bestÓ after accounting for department decision rights. We show that assuming prices are generated through profit maximization biases demand estimates and that second-best prices can persist, even under improvements to pricing algorithm inputs. Our results suggest caution in abstracting from organizational structure and drawing inferences from firmsÕ pricing decisions alone.

Keywords: Pricing; Organizational Structure; Revenue Management; Pricing Frictions; Behavioral IO (search for similar items in EconPapers)
JEL-codes: C11 C53 D22 D42 L10 L93 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2021-11, Revised 2022-10
New Economics Papers: this item is included in nep-com and nep-reg
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