Temporal Distance and Price Elasticity: Empirical Investigation of the Cruise Industry

54 Pages Posted: 15 Jul 2015 Last revised: 23 Oct 2016

Mingyu Joo

Ohio State University, Fisher College of Business

Kenneth C. Wilbur

University of California, San Diego (UCSD) - Rady School of Management

Dinesh K. Gauri

Walton College of Business

Date Written: October 21, 2016

Abstract

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

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

Mingyu Joo (Contact Author)

Ohio State University, Fisher College of Business ( email )

2100 Neil Ave.
Columbus, OH 43210-1144
United States

HOME PAGE: http://www.mingyujoo.com

Kenneth C. Wilbur

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

HOME PAGE: http://kennethcwilbur.com

Dinesh K. Gauri

Walton College of Business ( email )

Fayetteville, AR 72701
United States

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