Transaction Prices and Strategic Consumer Behavior: Pricing Evidence From the Airline Industry

Marketing Science (Forthcoming)

34 Pages Posted: 8 Jul 2013 Last revised: 2 Jan 2016

See all articles by Benny Mantin

Benny Mantin

Luxembourg Centre for Logistics and Supply Chain Management (LCL)

Eran Rubin

University of Akron - College of Business Administration

Date Written: July 7, 2013

Abstract

The operations literature has increasingly accounted for the presence of strategic consumer behavior. Theory suggests that such a behaviour exposes firms to intertemporal competition and exerts downwards pressure on prices. However, little evidence exists to demonstrate the outcome effect and the magnitude effects of such consumer behavior. This paper fills this gap by providing evidence for the effects of strategic consumer behaviour supported by online decision support tools. Online decision support tools that provide consumers with information about future distributions of prices support strategic consumer behavior. This paper studies whether the availability of such information affects transacted prices. We conduct an empirical analysis in the context of the airline industry, where airfares are associated with frequent changes. We study the effect at the route level and find significant price differences between routes for which airfare prediction information is available, and routes without airfare prediction information. We find that the availability of information about future fare distributions is associated with lower transacted airfares. This effect was consistent across the different fare percentiles and amounted to transactions with prices approximately 3% lower. We further find that while the magnitude of the effect is most profound shortly after route fare prediction information is introduced, the negative effect on transacted airfares persists in the long run. Interestingly, we do not find evidence that low cost carriers are affected by such availability of information, whereas legacy carriers are affected across all fare percentiles. Our results lend support to the notion that price prediction decision tools make a statistically significant economic impact. Presumably, consumers are able to exploit the information available online and behave more strategically.

Keywords: strategic consumers, decision support, dynamic pricing, information availability, airline industry

Suggested Citation

Mantin, Benny and Rubin, Eran, Transaction Prices and Strategic Consumer Behavior: Pricing Evidence From the Airline Industry (July 7, 2013). Marketing Science (Forthcoming). Available at SSRN: https://ssrn.com/abstract=2290775 or http://dx.doi.org/10.2139/ssrn.2290775

Benny Mantin (Contact Author)

Luxembourg Centre for Logistics and Supply Chain Management (LCL) ( email )

6, rue Richard Coudenhove-Kalergi
Luxembourg, L-1359
Luxembourg

HOME PAGE: http://mantin-in-the-air.com/

Eran Rubin

University of Akron - College of Business Administration ( email )

Akron, OH 44325-4803
United States
330-9726443 (Phone)

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