The hidden side of dynamic pricing in airline markets

Marco Alderighi, Alberto Gaggero and Claudio Piga

MPRA Paper from University Library of Munich, Germany

Abstract: An often disregarded, albeit central, aspect of the airline pricing's problem consists in assigning a fare to all the available seats on an airplane at the beginning of and during the whole booking period. We show how a flight's fare distribution is set in practice and how it changes over time using evidence from a leading European low-cost carrier. Such pricing behavior is consistent with the main predictions from the theoretical model we present. First, fare distributions are increasing across seats because a lower fare for the seat on sale enhances the likelihood of selling the subsequent seats. Second, over time fare distributions move, on average, downward to reflect the perishable nature of a flight's seats. Third, due to the increasing profile of the fare distributions across seats, we find that the price observed by prospective buyers tends to increase as the date of departure nears.

Keywords: dynamic pricing; option value; seat inventory control; low-cost carriers (search for similar items in EconPapers)
JEL-codes: D22 D90 L11 (search for similar items in EconPapers)
Date: 2016-06
New Economics Papers: this item is included in nep-com, nep-mkt and nep-tre
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Citations: View citations in EconPapers (1)

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https://mpra.ub.uni-muenchen.de/71674/1/MPRA_paper_71674.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/76977/1/MPRA_paper_76977.pdf revised version (application/pdf)

Related works:
Journal Article: Hidden prices with fixed inventory: Evidence from the airline industry (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:71674

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