Dynamic Price Competition: Theory and Evidence from Airline Markets

Aniko …ry (aniko.oery@yale.edu), Ali Horta su and Kevin Williams (kevin.williams@yale.edu)
Additional contact information
Aniko …ry: Cowles Foundation, Yale University
Ali Horta su: University of Chicago and NBER
Kevin Williams: Cowles Foundation, Yale University, https://economics.yale.edu/people/kevin-williams

No 2341R1, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We introduce a model of dynamic pricing in perishable goods markets with competition and provide conditions for equilibrium uniqueness. Pricing dynamics are rich because both own and competitor scarcity affect future profits. We identify new competitive forces that can lead to misallocation due to selling units too quickly: the Bertrand scarcity trap. We empirically estimate our model using daily prices and bookings for competing U.S. airlines. We compare competitive equilibrium outcomes to those where firms use pricing heuristics based on observed internal pricing rules at a large airline. We find that pricing heuristics increase revenues (4-5%) and consumer surplus (3%).

JEL-codes: C70 C73 D21 D22 D43 D60 L13 L93 (search for similar items in EconPapers)
Pages: 77 pages
Date: 2022-08, Revised 2023-04
New Economics Papers: this item is included in nep-com, nep-reg and nep-tre
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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