54 Pages Posted: 15 Jul 2015 Last revised: 23 Oct 2016
Date Written: October 21, 2016
The conventional view of advance-sales industries, based on evidence from air travel, is that aggregate demand becomes less price-elastic as the advance sales period proceeds. We explore this phenomenon by estimating the responsiveness of demand to price in the cruise industry. We offer the first evidence that, unlike the airline-based conventional wisdom, cruise demand becomes more sensitive to price during the advance sales period. The result appears to be driven by consumer heterogeneity corresponding to time of arrival. The pattern cannot be explained by strategic purchase timing, capacity constraints or competitors' pricing. The finding suggests that early-bird discounts, high last-minute spot prices and other forms of increasing price paths may be inconsistent with maximum profitability in some industries.
Keywords: Advance Sales, Cruise, Price Elasticity, Temporal Distance
Suggested Citation: Suggested Citation
Joo, Mingyu and Wilbur, Kenneth C. and Gauri, Dinesh K., Temporal Distance and Price Elasticity: Empirical Investigation of the Cruise Industry (October 21, 2016). Available at SSRN: https://ssrn.com/abstract=2630858 or http://dx.doi.org/10.2139/ssrn.2630858