Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Wednesday, September 12, 2018

Dynamic Airline Pricing and Seat Availability

Kevin R. Williams (Cowles Foundation, Yale University) writes on Dynamic Airline Pricing and Seat Availability.

ABSTRACT: Airfares are determined by both intertemporal price discrimination and dynamic adjustment to stochastic demand. I estimate a model of dynamic airline pricing accounting for both forces with new flight-level data. With model estimates, I disentangle key interactions between the arrival pattern of consumer types and remaining capacity under stochastic demand. I show that the forces are complements in airline markets and lead to significantly higher revenues, as well as increased consumer surplus, compared to a more restrictive pricing regime. Finally, I show that abstracting from stochastic demand leads to a systematic bias in estimating demand elasticiti es.

http://lawprofessors.typepad.com/antitrustprof_blog/2018/09/dynamic-airline-pricing-and-seat-availability.html

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