Dynamic Pricing, Advance Sales, and Aggregate Demand Learning in Airlines

Escobari, Diego (2011): Dynamic Pricing, Advance Sales, and Aggregate Demand Learning in Airlines. Forthcoming in: Journal of Industrial Economics

Abstract

This paper uses a unique U.S. airlines panel data set to empirically study the dynamic pricing of inventories with uncertain demand over a finite horizon. I estimate a dynamic pricing equation and a dynamic demand equation that jointly characterize the adjustment process between prices and sales as the flight date nears. I find that the price increases as the inventory decreases, and decreases as there is less time to sell. Consistent with aggregate demand learning and price adjustment, demand shocks have a positive and much larger effect on prices than the positive effect of anticipated sales.

• Item Type: MPRA Paper
• Language: English
• Keywords: pricing; demand uncertainty; demand learning; airlines
• Subjects: L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L93 - Air Transportation; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D84 - Expectations ; Speculations; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C23 - Panel Data Models ; Spatio-temporal Models; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search ; Learning ; Information and Knowledge ; Communication ; Belief ; Unawareness

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