Price Discrimination in International Airline Markets

52 Pages Posted: 17 Dec 2018

See all articles by Gaurab Aryal

Gaurab Aryal

University of Virginia - Department of Economics

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 airlines to study the ability of different discriminatory mechanisms to remove sources of inefficiency and the associated distributional implications. To estimate the model’s multi-dimensional distribution of preference heterogeneity, we use unique data from international airline markets with flight-level variation in prices across time and cabins, and information on passengers' reason for travel. We find that current pricing practices grant late-arriving business passengers substantial informational rents and yield 81% of first-best welfare, with stochastic demand and asymmetric information accounting for 65% and 35% of the gap, respectively.

JEL Classification: D42, L00, L93

Suggested Citation

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

Gaurab Aryal (Contact Author)

University of Virginia - Department of Economics ( email )

P.O. Box 400182
Charlottesville, VA 22904-4182
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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