An Analysis of Dynamic Price Discrimination in Airlines

35 Pages Posted: 12 Apr 2013 Last revised: 29 Jul 2018

See all articles by Diego Escobari

Diego Escobari

University of Texas - Pan American - College of Business Administration - Department of Economics & Finance; Texas A&M University - Department of Economics

Nicholas G. Rupp

East Carolina University - Department of Economics

Joseph Meskey

East Carolina University

Date Written: July 11, 2018

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.

Keywords: Pricing, Price discrimination, Price dispersion, Airlines

JEL Classification: C23, L93

Suggested Citation

Escobari, Diego and Rupp, Nicholas G. and Meskey, Joseph, An Analysis of Dynamic Price Discrimination in Airlines (July 11, 2018). Available at SSRN: https://ssrn.com/abstract=2248124 or http://dx.doi.org/10.2139/ssrn.2248124

Diego Escobari

University of Texas - Pan American - College of Business Administration - Department of Economics & Finance ( email )

1201 W. University Drive
Edinburg, TX 78539-2999
United States

HOME PAGE: http://faculty.utrgv.edu/diego.escobari

Texas A&M University - Department of Economics ( email )

5201 University Blvd.
College Station, TX 77843-4228
United States

Nicholas G. Rupp (Contact Author)

East Carolina University - Department of Economics ( email )

Brewster Building
Greenville, NC 27858
United States
252.328.6821 (Phone)
252.328.6743 (Fax)

HOME PAGE: http://myweb.ecu.edu/ruppn/

Joseph Meskey

East Carolina University ( email )

Greenville, NC 27858
United States

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