The Welfare Effects of Dynamic Pricing: Evidence from Airline Markets

Kevin Williams

No 28989, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Airfares fluctuate due to demand shocks and intertemporal variation in willingness to pay. I estimate a model of dynamic airline pricing accounting for both sources of price adjustments using novel flight-level data. I use the model estimates to evaluate the welfare effects of dynamic airline pricing. Relative to uniform pricing, dynamic pricing benefits early-arriving, leisure consumers at the expense of late-arriving, business travelers. Although dynamic pricing ensures seat availability for business travelers, these consumers are then charged higher prices. When aggregated over markets, welfare is higher under dynamic pricing than under uniform pricing. The directionality of the welfare effect at the market level depends on whether dynamic price adjustments are mainly driven by demand shocks or by changes in the overall demand elasticity.

JEL-codes: L11 L12 L93 (search for similar items in EconPapers)
Date: 2021-07
New Economics Papers: this item is included in nep-com, nep-ind, nep-reg and nep-tre
Note: IO
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Citations: View citations in EconPapers (2)

Published as Williams, K.R. (2022), The Welfare Effects of Dynamic Pricing: Evidence From Airline Markets. Econometrica, 90: 831-858.

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