Dynamic Price Competition: Theory and Evidence from Airline Markets

Jose M. Betancourt, Ali Hortacsu, Aniko Oery and Kevin Williams
Authors registered in the RePEc Author Service: Aniko Öry

No 30347, NBER Working Papers from National Bureau of Economic Research, Inc

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)
Date: 2022-08
New Economics Papers: this item is included in nep-com, nep-cta, nep-gth, nep-ind, nep-reg and nep-tre
Note: IO
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w30347.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:30347

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w30347

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().