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An Analysis of Dynamic Price Discrimination in Airlines

Author

Listed:
  • Escobari, Diego
  • Rupp, Nicholas
  • Meskey, Joseph
Abstract
Prices for the same flight change substantially depending on the time of purchase. This paper uses a unique dataset with round-the-clock posted fares to document significant within-day price variation. Labeling time-variation as discriminatory is difficult because the cost of an unsold airline seat changes with inventory, days before departure and aggregate demand expectations. After controlling for these factors and aggregating hourly fares to have a framework with two consumer types, we are able to identify a component that is largely consistent with dynamic price discrimination. We find higher prices during office hours (when business travelers are likely to buy) and lower prices in the evening (when leisure travelers are more likely to purchase). As the proportion of business travelers increases closer to departure, both price dispersion and price discrimination become larger. We provide an alternative explanation for the observed within-day price differentials which is related to Edgeworth price cycles.

Suggested Citation

  • Escobari, Diego & Rupp, Nicholas & Meskey, Joseph, 2018. "An Analysis of Dynamic Price Discrimination in Airlines," MPRA Paper 88287, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:88287
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    References listed on IDEAS

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    2. Siegert, Caspar & Ulbricht, Robert, 2020. "Dynamic oligopoly pricing: Evidence from the airline industry," International Journal of Industrial Organization, Elsevier, vol. 71(C).
    3. Luttmann, Alexander & Gaggero, Alberto A, 2020. "Purchase discounts and travel premiums during holiday periods: Evidence from the airline industry," MPRA Paper 104863, University Library of Munich, Germany.
    4. Myongjin Kim & Qihong Liu & Nicholas G. Rupp, 2023. "When Do Firms Offer Higher Product Quality? Evidence from the Allocation of Inflight Amenities," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 62(2), pages 149-177, March.
    5. Brad Shrago, 2024. "The Spirit Effect: Ultra-Low Cost Carriers and Fare Dispersion in the U.S. Airline Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 64(4), pages 549-579, June.
    6. Groh, Carl-Christian, 2023. "Search, Data, and Market Power," VfS Annual Conference 2023 (Regensburg): Growth and the "sociale Frage" 277701, Verein für Socialpolitik / German Economic Association.
    7. Luttmann, Alexander & Gaggero, Alberto A, 2022. "How does COVID-19 affect intertemporal price dispersion? Evidence from the airline industry," MPRA Paper 111797, University Library of Munich, Germany.
    8. Carl-Christian Groh, & Jonas von Wangenheim, 2024. "Pigou Meets Wolinsky: Search, Price Discrimination, and Consumer Sophistication," CRC TR 224 Discussion Paper Series crctr224_2024_527, University of Bonn and University of Mannheim, Germany.
    9. Button, Kenneth & Porta, Flavio & Scotti, Davide, 2020. "The role of strategic airline alliances in Africa," MPRA Paper 108265, University Library of Munich, Germany.
    10. Peng Du & Lei Xu & Rou Luo & Mingzhu Hou, 2024. "Competing with Low Cost Carrier in a Sustainable Environment: Airline Ticket Pricing, Carbon Trading, and Market Power Structure," Sustainability, MDPI, vol. 16(2), pages 1-17, January.
    11. Mohit Tyagi & Nomesh B. Bolia, 2022. "Approaches for restaurant revenue management," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 21(1), pages 17-35, February.
    12. Meire, Sarah & Derudder, Ben, 2021. "Virtual interlining within the European airport network: An airfare analysis," Journal of Air Transport Management, Elsevier, vol. 94(C).

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    More about this item

    Keywords

    Pricing; Price discrimination; Price dispersion; Airlines;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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