The hidden side of dynamic pricing in airline markets

Alderighi, Marco and Gaggero, Alberto A and Piga, Claudio A (2016): The hidden side of dynamic pricing in airline markets.

Abstract

To study dynamic pricing in airline markets it is essential to model the time variation of the distribution of fares that airlines assign to all the airplane's seats. We show how a flight's fare distribution is set in practice and its consistency with the properties of a theoretical model. First, fare distributions are increasing across seats. Second, over time fare distributions move downward to reflect the perishable nature of seats. Third, we find that the fare observed by prospective buyers tends to increase as the date of departure nears.

• Item Type: MPRA Paper
• Language: English
• Keywords: dynamic pricing, option value, seat inventory control, low-cost carriers
• Subjects: D - Microeconomics > D2 - Production and Organizations > D22 - Firm Behavior: Empirical Analysis; D - Microeconomics > D9 - Intertemporal Choice > D90 - General; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms

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