Overbooking

Jeffrey Ely, Daniel Garrett and Toomas Hinnosaar

No 16-678, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: We consider optimal pricing policies for airlines when passengers are uncertain at the time of ticketing of their eventual willingness to pay for air travel. Auctions at the time of departure efficiently allocate space and a profit maximizing airline can capitalize on these gains by overbooking ights and repurchasing excess tickets from those passengers whose realized value is low. Nevertheless profit maximization entails distortions away from the efficient allocation. Under regularity conditions, we show that the optimal mechanism can be implemented by a modified double auction. In order to encourage early booking, passengers who purchase late are disadvantaged. In order to capture the information rents of passengers with high expected values, ticket repurchases at the time of departure are at a subsidized price, sometimes leading to unused capacity.

Keywords: airlines; overbooking; revenue management; dynamic mechanism design (search for similar items in EconPapers)
JEL-codes: D42 D44 D82 (search for similar items in EconPapers)
Date: 2016-07
New Economics Papers: this item is included in nep-com, nep-mic, nep-tre and nep-tur
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://www.tse-fr.eu/sites/default/files/TSE/docu ... /2016/wp_tse_678.pdf Full text (application/pdf)

Related works:
Journal Article: Overbooking (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:30570

Access Statistics for this paper

More papers in TSE Working Papers from Toulouse School of Economics (TSE) Contact information at EDIRC.
Bibliographic data for series maintained by ().