Estimating Dynamic Demand for Airlines

Diego, Escobari (2014): Estimating Dynamic Demand for Airlines. Forthcoming in: Economics Letters

Abstract

This paper uses an original panel dataset with posted prices and sales to estimate a dynamic demand. We find that consumers become more price sensitive as time to departure nears which is consistent with having lower valuations. This result provides empirical support to a key theoretical implication in Deneckere and Peck [Deneckere, R., Peck, J., 2012. Dynamic competition with random demand and costless search: A theory of price posting. Econometrica 80, 1185-1247] --- high-valuation consumers purchase earlier. We also find that the number of active consumers increases closer to departure.

• Item Type: MPRA Paper
• Language: English
• Keywords: Dynamic demand; Consumers' valuations; Advance purchases; Airlines
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C23 - Panel Data Models ; Spatio-temporal Models; D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis; L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L93 - Air Transportation; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R4 - Transportation Economics > R41 - Transportation: Demand, Supply, and Congestion ; Travel Time ; Safety and Accidents ; Transportation Noise

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