Dynamic Airline Pricing and Seat Availability
Kevin R. Williams ()
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Kevin R. Williams: Cowles Foundation, Yale University, http://kevinrwilliams.com/
No 2103R, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University
Airfares fluctuate over time due to both demand shocks and intertemporal variation in willingness to pay. I develop and estimate a model of dynamic airline pricing accounting for both forces with new flight-level data. With the model estimates, I disentangle key interactions between the arrival pattern of consumer types and scarcity of remaining capacity due to stochastic demand. I show that dynamic airline pricing expands output by lowering fares charged to early-arriving, price-sensitive customers. It also ensures seats for late-arriving travelers with the highest willingness to pay (e.g. business travelers) who are then charged high prices. I ?nd that dynamic airline pricing increases total welfare relative to a more restrictive pricing regime. Finally, I show that abstracting from stochastic demand results in incorrect inferences regarding the extent to which airlines utilize intertemporal price discrimination.
Keywords: Dynamic pricing; Intertemporal price discrimination; Price discrimination; Stochastic demand; Pricing; Airlines; Dynamic discrete choice (search for similar items in EconPapers)
JEL-codes: L11 L12 L93 (search for similar items in EconPapers)
Pages: 75 pages
Date: 2017-08, Revised 2020-05
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