Organizational Structure and Pricing: Evidence from a Large U.S. Airline

Ali Hortacsu, Olivia R. Natan, Hayden Parsley, Timothy Schwieg and Kevin R. Williams ()
Additional contact information
Olivia R. Natan: University of California, Berkeley
Hayden Parsley: University of Texas, Austin
Timothy Schwieg: University of Chicago, Booth
Kevin R. Williams: Cowles Foundation, Yale University, https://som.yale.edu/faculty/kevin-r-williams

No 2312R, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: Although typically modeled as a centralized firm decision, pricing often involves multiple organizational teams that have decision rights over specific pricing inputs. We study team input decisions using comprehensive data from a large U.S. airline. We document that pricing at a sophisticated firm is subject to miscoordination across teams, uses persistently biased forecasts, and does not account for cross-price elasticities. With structural demand estimates derived from sales and search data, we find that addressing one team’s biases in isolation has little impact on market outcomes. We show that teams do not optimally account for biases introduced by other teams. We estimate that corrected and coordinated inputs would lead to a significant reallocation of capacity. Leisure consumers would benefit from lower fares, and business customers would face significantly higher fares. Dead-weight loss would increase in the markets studied. Finally, we discuss likely mechanisms for the observed pricing biases.

Keywords: Pricing; Organizational Structure; Revenue Management; Pricing Frictions; Behavioral IO (search for similar items in EconPapers)
JEL-codes: C11 C53 D22 D42 L10 L93 (search for similar items in EconPapers)
Pages: 66 pages
Date: 2021-11, Revised 2022-03
New Economics Papers: this item is included in nep-bec and nep-com
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Related works:
Working Paper: Organizational Structure and Pricing: Evidence from a Large U.S. Airline (2021)
Working Paper: Organizational Structure and Pricing: Evidence from a Large U.S. Airline (2021)
Working Paper: Organizational Structure and Pricing: Evidence from a Large U.S. Airline (2021)
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