How does COVID-19 affect intertemporal price dispersion? Evidence from the airline industry

Luttmann, Alexander and Gaggero, Alberto A (2023): How does COVID-19 affect intertemporal price dispersion? Evidence from the airline industry.

Abstract

This study provides empirical evidence documenting how COVID-19 affects intertemporal price dispersion in the U.S. domestic airline market. Applying fixed effect techniques to a unique panel of 43 million fares collected before and after the outbreak of the pandemic, we find that airlines discounted fares by an average of 57% in the first five months of the pandemic, and that prices intertemporally increased at a lower rate, particularly in the last week to departure. As a consequence, flight-level price dispersion decreased. These findings are consistent with the predictions from clearinghouse models of price dispersion and suggest that changes in the mix of traveling passengers during the pandemic (i.e., the decline in the share of business travel) resulted in airlines adjusting their intertemporal price discrimination strategy.

• Item Type: MPRA Paper
• Language: English
• Keywords: airlines, COVID-19, intertemporal pricing, price dispersion
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design > D40 - General; I - Health, Education, and Welfare > I1 - Health > I19 - Other; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms; L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L93 - Air Transportation

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