Asymmetric Price Adjustments in Airlines

Authors

Diego Escobari, The University of Texas Rio Grande ValleyFollow

Document Type

Article

Publication Date

2013

Abstract

This paper uses a unique daily time series data set to investigate the asymmetric response of airline prices to capacity costs driven by demand fluctuations. We use a Markov regime-switching model with time-varying transition probabilities to capture the time variation in the response. The results show strong evidence of asymmetric price adjustments: positive cost shifts have a large positive effect, whereas negative cost shifts have no effect. The asymmetry is also explained by summer travel but not by the size of cost shifts. The findings show the importance of consumer heterogeneity and capacity constraints as a source of asymmetric responses. Copyright © 2012 John Wiley & Sons, Ltd.

Comments

Copyright © 2012 John Wiley & Sons, Ltd.

https://onlinelibrary.wiley.com/share/HPFEU7SNRY8R8RKM7EDN?target=10.1002/mde.2575

Recommended Citation

Escobari, D. (2013), Asymmetric Price Adjustments in Airlines. Manage. Decis. Econ., 34: 74-85. https://doi.org/10.1002/mde.2575

Publication Title

Manage. Decis. Econ.

DOI

10.1002/mde.2575