Dynamic Airline Pricing and Seat Availability

54 Pages Posted: 29 Aug 2017 Last revised: 16 Mar 2018

See all articles by Kevin Williams

Kevin Williams

Yale School of Management; Yale University - Cowles Foundation

Multiple version iconThere are 2 versions of this paper

Date Written: February 1, 2018

Abstract

Airfares are determined by both intertemporal price discrimination and dynamic adjustment to stochastic demand. I estimate a model of dynamic airline pricing accounting for both forces with new flight-level data. With model estimates, I disentangle key interactions between the arrival pattern of consumer types and remaining capacity under stochastic demand. I show that the forces are complements in airline markets and lead to significantly higher revenues, as well as increased consumer surplus, compared to a more restrictive pricing regime. Finally, I show that abstracting from stochastic demand leads to a systematic bias in estimating demand elasticities.

Keywords: Dynamic pricing, Intertemporal price discrimination, Price discrimination, Stochastic demand, Pricing, Airlines, Dynamic discrete choice

JEL Classification: L11, L12, L93

Suggested Citation

Williams, Kevin, Dynamic Airline Pricing and Seat Availability (February 1, 2018). Cowles Foundation Discussion Paper No. 2103, Available at SSRN: https://ssrn.com/abstract=3026383 or http://dx.doi.org/10.2139/ssrn.3026383

Kevin Williams (Contact Author)

Yale School of Management ( email )

New Haven, CT 06520
United States

HOME PAGE: http://som.yale.edu

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States

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