Social and Behavioral Sciences Commons^™

An Analysis Of Dynamic Price Discrimination In Airlines, Diego Escobari, Nicholas G. Rupp, Joseph Meskey

Economics and Finance Faculty Publications and Presentations

Prices for the same flight change substantially depending on the time of purchase. This article uses a unique data set 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) …

Price Discrimination And Focal Points For Tacit Collusion: Evidence From The Airline Industry, Diego Escobari, Nicholas G. Rupp, Joseph Meskey

Economics and Finance Faculty Publications and Presentations

We use unique data sets with round-the-clock posted fares and a regression discontinuity design to identify price discrimination in advance-purchase discounts. Price discrimination increases fares by 7.6% at 14 days to departure, and by 14% at 7 days to departure. While competition reduces price discrimination, it is unaffected by product variety for a multiproduct monopolist. The results show that the arbitrary thresholds of 7 and 14 days-in-advance serve as focal points for tacit collusion and to implement price discrimination in competitive markets. For round-trip tickets price discrimination depends on the days-in-advance for both the outbound and inbound flights.

Price Discrimination Through Refund Contracts In Airlines, Diego Escobari, Paan Jindapon

Economics and Finance Faculty Publications and Presentations

This paper shows how an airline monopoly uses refundable and non-refundable tickets to screen consumers who are uncertain about their travel. Our theoretical model predicts that the difference between these two fares diminishes as individual demand uncertainty is resolved. Using an original data set from U.S. airline markets, we find strong evidence supporting our model. Price discrimination opportunities through refund contracts decline as the departure date nears and individuals learn about their demand.

Highlights

• We show how an airline screens consumers who are uncertain about their travel.

• The theory explains how an airline sets refundable and non-refundable prices. …