Consequences of Dynamic Pricing in Competitive Airline Markets

46 Pages Posted: 6 Dec 2022 Last revised: 27 Jan 2023

See all articles by Nan Chen

Nan Chen

National University of Singapore

Przemyslaw Jeziorski

University of California, Berkeley - Haas School of Business

Date Written: January 26, 2023

Abstract

Dynamic pricing is a common tool to maximize sales in markets for perishable goods with limited capacity and stochastic demand. We look at the relationship between dynamic pricing and oligopolistic competition in the airline industry. For this purpose, we estimate the dynamic oligopoly model of dynamic pricing competition in a market with carrier exit using flight-level data. We discover that dynamic pricing results in a Pareto improvement, increasing firm profits and consumer welfare. We break down the impact into two categories: price discrimination and pricing on residual capacity (revenue management). We find that price discrimination softens competition, whereas revenue management intensifies it.

Keywords: airline industry, dynamic pricing, dynamic oligopoly, perishable good, price discrimination, revenue management, demand uncertainty, capacity constraint

JEL Classification: D22, D25, D43, D61, L11, L13, L93

Suggested Citation

Chen, Nan and Jeziorski, Przemyslaw, Consequences of Dynamic Pricing in Competitive Airline Markets (January 26, 2023). Available at SSRN: https://ssrn.com/abstract=4285718 or http://dx.doi.org/10.2139/ssrn.4285718

Nan Chen

National University of Singapore ( email )

21 Lower Kent Ridge Rd
Singapore
Singapore, 117417
Singapore

HOME PAGE: http://sites.google.com/site/ttnanchen

Przemyslaw Jeziorski (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

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