Understanding Price Dispersion in the Airline Industry: Capacity Constraints and Consumer Heterogeneity
26 Pages Posted: 26 Sep 2005
Date Written: April 2005
Abstract
This paper analyzes across-airline differences in economy class fares, aimed at consumers of different types. We use the sample of fares, offered on the London-New York market. Different booking scenarios have been employed to obtain offered fares to resemble those aimed at customers of different types. We determine that fares aimed at the business customers are different across airlines, while leisure fares are not. Such conduct appears to be consistent with airlines applying yield management technique to manage uncertain demand under short-term fixed capacity. Yet, empirical support of this contention in our sample is weak. We hope that this finding will eventually help us understand the role of uncertain demand and constrained capacity in price dispersion in the airline and similar industries.
Keywords: Price Dispersion, Price Discrimination, Consumer Heterogeneity, Capacity Constraints, Business Traveler, Yield Management
JEL Classification: D43, L93
Suggested Citation: Suggested Citation
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