Price Discrimination in International Airline Markets

The Review of Economic Studies

61 Pages Posted: 17 Dec 2018 Last revised: 5 Dec 2022

See all articles by Gaurab Aryal

Gaurab Aryal

Washington University in St. Louis

Charles Murry

Boston College - Department of Economics

Jonathan W. Williams

University of North Carolina (UNC) at Chapel Hill - Department of Economics

Date Written: November 26, 2018

Abstract

We develop a model of inter-temporal and intra-temporal price discrimination by monopoly airlines to study the ability of different discriminatory pricing mechanisms to increase efficiency and the associated distributional implications. To estimate the model, we use unique data from international airline markets with flight-level variation in prices across time, cabins, and markets and information on passengers’ reasons for travel and time of purchase. The current pricing practice yields approximately 77% of the first-best welfare. The source of this inefficiency arises primarily from private information about passenger valuations, not dynamic uncertainty about demand. We also find that if airlines could discriminate between business and leisure passengers, total welfare would improve at the expense of business passenger surplus. Also, replacing the current pricing that involves screening passengers across cabin classes with offering a single cabin class has minimal effect on total welfare.

JEL Classification: D82, L11, L12, L93

Suggested Citation

Aryal, Gaurab and Murry, Charles and Williams, Jonathan W., Price Discrimination in International Airline Markets (November 26, 2018). The Review of Economic Studies, Available at SSRN: https://ssrn.com/abstract=3288276 or http://dx.doi.org/10.2139/ssrn.3288276

Gaurab Aryal (Contact Author)

Washington University in St. Louis ( email )

Seigle Hall 335
One Brookings Drive
St. Louis, MO 63130
United States

Charles Murry

Boston College - Department of Economics ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Jonathan W. Williams

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Chapel Hill, NC 27599
United States

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