The Welfare Effects of Dynamic Pricing: Evidence from Airline Markets

Kevin R. Williams ()
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Kevin R. Williams: Cowles Foundation, Yale University, http://kevinrwilliams.com/

No 2103R2, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

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 e?ects of dynamic airline pricing. Relative to uniform pricing, dynamic pricing bene?ts 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 e?ect at the market level depends on whether dynamic price adjustments are mainly driven by demand shocks or by changes in the overall demand elasticity.

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: 69 pages
Date: 2017-08, Revised 2021-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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