Asymmetric Price Adjustments in Airlines

Diego Escobari

MPRA Paper from University Library of Munich, Germany

Abstract: This paper uses a unique daily time series data set to investigate the asymmetric response of airline prices to capacity costs driven by demand fluctuations. We use a Markov regime-switching model with time-varying transition probabilities to capture the time variation in the response. The results show strong evidence of asymmetric price adjustments: positive cost shifts have a large positive effect, while negative cost shifts have no effect. The asymmetry is also explained by summer travel, but not by the size of cost shifts. The findings show the importance of consumer heterogeneity and capacity constraints as a source of asymmetric responses.

Keywords: Asymmetric pricing; Airlines; Regime switching; Capacity costs (search for similar items in EconPapers)
JEL-codes: C22 L93 (search for similar items in EconPapers)
Date: 2012-10-21
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind, nep-tre and nep-tur
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Related works:
Journal Article: Asymmetric Price Adjustments in Airlines (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:42115

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