Friday, October 15, 2010

Refundability and Price

Blog readers may be interested in a new working paper by Makoto Watanabe & Seongman Moon, Refundability and Price: Empirical Analysis of the Airline Industry (Working Paper, Sept. 20, 2010 (available from SSRN here).  From the abstract:

This paper provides new evidence on price dispersion in the US airline industry. Using the observed fare differences between refundable and non-refundable tickets, we first document evidence on the prices passengers pay for an option of returning their tickets. We found that the factors related to the value of refund option and customers' demand uncertainties have a significant impact on the relative refund fares. This finding turns out to be robust for various market structures. Further, taking into account the differential patterns of the relative refund fares, we investigate the impact of market structure on price dispersions.

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