Wednesday, April 24, 2019

Price Discrimination in International Airline Markets

By: Gaurab Aryal (Department of Economics, University of Virginia); Charles Murry (Department of Economics, Boston College); Jonathan W. Williams(Department of Economics, University of North Carolina - Chapel Hill)
Abstract: We develop a model of inter-temporal and intra-temporal price discrimination by airlines to study the ability of different discriminatory mechanisms to remove sources of inefficiency and the associated distributional implications. To estimate the model’s multi-dimensional distribution of preference heterogeneity, we use unique data from international airline markets with flight-level variation in prices across time and cabins, and information on passengers’ reason for travel. We find that current pricing practices grant late-arriving business passengers substantial informational rents and yield 81% of first-best welfare, with stochastic demand and asymmetric information accounting for 65% and 35% of the gap, respectively.
Keywords: dynamic pricing, screening, perishable goods
JEL: L00 D42 L93
Date: 2018–11–26

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