Low-cost airlines and online price dispersion

Enrico Bachis and Claudio A. Piga

International Journal of Industrial Organization, 2011, vol. 29, issue 6, 655-667

Abstract: This paper presents a new form of online pricing tactic where airlines post, at the same time and for the same flight, fares in different currencies that violate the Law of One Price. Unexpectedly for an online market, price dispersion may be accompanied by a hidden discount that tends to persist in the period preceding a flight's departure. The econometric analysis reveals that airlines post dispersive fares in less competitive routes with more heterogeneous demand. Furthermore, temporal persistence of intra-firm fare dispersion suggests that it is an equilibrium phenomenon engendered by the airlines' need to manage stochastic demand conditions for a specific flight.

Keywords: Law of One Price; Online pricing; Dispersion; Airlines; Search costs (search for similar items in EconPapers)
JEL-codes: L11 L13 L93 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:29:y:2011:i:6:p:655-667

DOI: 10.1016/j.ijindorg.2011.02.006

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