An Analysis of Dynamic Price Discrimination in Airlines

Authors

Diego Escobari, The University of Texas Rio Grande Valley
Nicholas G. Rupp
Joseph Meskey

Document Type

Article

Publication Date

12-14-2018

Abstract

Prices for the same flight change substantially depending on the time of purchase. This article uses a unique data set with round‐the‐clock posted fares to document significant within‐day price variation. Labeling time‐variation as discriminatory is difficult because the cost of an unsold airline seat changes with inventory, days before departure, and aggregate demand expectations. After controlling for these factors and aggregating hourly fares to have a framework with two consumer types, we are able to identify a component that is largely consistent with dynamic price discrimination. We find higher prices during office hours (when business travelers are likely to buy) and lower prices in the evening (when leisure travelers are more likely to purchase). As the proportion of business travelers increases closer to departure, both price dispersion and price discrimination become larger. We provide an alternative explanation for the observed within‐day price differentials which is related to Edgeworth price cycles.

Comments

© 2018 by the Southern Economic Association. Original published version available at https://doi.org/10.1002/soej.12309

Recommended Citation

Escobari, Diego, Nicholas G. Rupp, and Joseph Meskey. “An Analysis of Dynamic Price Discrimination in Airlines.” Southern Economic Journal 85, no. 3 (December 14, 2018): 639–62. https://doi.org/10.1002/soej.12309.

First Page

639

Last Page

662

Publication Title

Southern Economic Journal

DOI

10.1002/soej.12309