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Abstract

An often disregarded, albeit central, aspect of the airline pricing-s problem consists in assigning a fare to all the available seats on an airplane at the beginning of and during the whole booking period. We show how a flight-s fare distribution is set in practice and how it changes over time using evidence from a leading European low-cost carrier. Such pricing behavior is consistent with the main predictions from the theoretical model we present. First, fare distributions are increasing across seats because a lower fare for the seat on sale enhances the likelihood of selling the subsequent seats. Second, over time fare distributions move, on average, downward to reflect the perishable nature of a flight-s seats. Third, due to the increasing profile of the fare distributions across seats, we find that the price observed by prospective buyers tends to increase as the date of departure nears.



Item Type: MPRA Paper -

Original Title: The hidden side of dynamic pricing in airline markets-

Language: English-

Keywords: dynamic pricing, option value, seat inventory control, low-cost carriers-

Subjects: D - Microeconomics > D2 - Production and Organizations > D22 - Firm Behavior: Empirical AnalysisD - Microeconomics > D9 - Intertemporal Choice > D90 - GeneralL - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms-





Author: Alderighi, Marco

Source: https://mpra.ub.uni-muenchen.de/71674/







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