Airline Market Power and Intertemporal Price Dispersion

This paper analyzes the empirical relationship between market structure and price dispersion in the airline markets connecting the UK and the Republic of Ireland. Price dispersion is measured by a number of inequality indexes, calculated using fares posted on the Internet at specific days before takeoff. We find a negative correlation between market dominance and price dispersion; thus competition appears to hinder the airlines' ability to price discriminate to exploit consumers' heterogeneity in booking time preferences. Moreover, in the Christmas and Easter periods of high demand, fares are less dispersed, possibly because airlines target a less heterogenous set of consumers.Intertemporal pricing, competition, price dispersion.

Airline Pricing under Different Market Conditions: Evidence from European Low-Cost Carriers

Traditional theories of airline pricing maintain that fares monotonically increase as fewer seats remain available on a flight. A fortiori, this implies a monotonically increasing temporal profile of fares. In this paper, we exploit the presence of drops in offered fares over time as an indicator of an active yield management intervention by two main European Low-Cost Carriers observed daily during the period June 2002 - June 2003. Our results indicate that yield management is effective in raising a flight's load factor. Furthermore, yield management interventions are more intense, and generate a stronger impact, on more competitive routes: one possible interpretation is that a reduction in competitive pressure allows the carriers to adopt a more standardized approach to pricing. Similarly, we find that yield management interventions are more effective in raising the load factor on routes where the customer mix is more heterogenous (i.e., it includes passengers traveling for leisure, business and for family matters). On markets with homogeneous customer base, no robust yield management effect was observed.Easyjet, Intertemporal Pricing, Panel Data, Ryanair, Yield Management

Airline market power and intertemporal price dispersion

This paper analyzes the empirical relationship between market structure and price dispersion in the airline markets connecting the UK and the Republic of Ireland. Price dispersion is measured by a number of inequality indexes, calculated using fares posted on the Internet at specific days before takeoff. We find a negative correlation between market dominance and price dispersion; thus competition appears to hinder the airlines' ability to price discriminate to exploit consumers' heterogeneity in booking time preferences. Moreover, in the Christmas and Easter periods of high demand, fares are less dispersed, possibly because airlines target a less heterogenous set of consumers

Airline competition in the British Isles

We study the relationship between pricing and market structure on the routes connecting the UK and the Republic of Ireland. Because in 2007 the European Commission prohibited the takeover of Aer Lingus by Ryanair, the analysis focuses on their pricing strategies in particular. We use an original dataset of fares posted on-line, which allows to control for the fares' intertemporal pattern for each specific flight and each carrier's specific yield management system. Our evidence supports the European Commission's view that the elimination of a competitor in the Irish airline market is likely to have harmful consequences for consumers

The hidden sides of ‘dynamic pricing’ for airline tickets

Unlike its planes, easyJet prices go up but don't come down: The longer you wait, the more you pay, write Marco Alderighi, Alberto A. Gaggero and Claudio A. Pig

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

This study provides empirical evidence documenting how COVID-19 affects intertemporal price dispersion in the airline industry. Exploiting a unique panel of 43 million fares collected before and during the pandemic, we find that airlines discounted fares by an average of 57%. The rate of intertemporal price increases also declined, particularly in the last week to departure. We also find that flight-level price dispersion increased during the pandemic. Fare decreases (and the associated increase in price dispersion) are found to be driven primarily by the diffusion of COVID-19 at the destination as opposed to the origin market

Purchase discounts and travel premiums during holiday periods: Evidence from the airline industry

Discounts during Thanksgiving and Christmas are common in a variety of retail markets. Although classical economic theory predicts that prices should increase when aggregate demand is high, one possibility is that consumers are more price elastic during seasonal demand peaks. In this article, we examine holiday pricing in the airline industry. Exploiting a unique panel of almost 22 million fares, we find that fares purchased on a holiday are 1.8% cheaper, supporting the conjecture that airlines price discriminate when the mix of purchasing passengers makes demand more elastic. These holiday booking discounts are also found to be larger in competitive markets, with the largest discounts reserved for flights within one-week of departure. In contrast to flights purchased on a holiday, we find that traveling on a holiday is more expensive. Consistent with peak-load pricing, we estimate travel premiums ranging from 41.6% to 82.0% on national holidays and from 4.6% to 35.0% on federal holidays

Purchase discounts and travel premiums during holiday periods: Evidence from the airline industry

Discounts during Thanksgiving and Christmas are common in a variety of retail markets. Although classical economic theory predicts that prices should increase when aggregate demand is high, one possibility is that consumers are more price elastic during seasonal demand peaks. In this article, we examine holiday pricing in the airline industry. Exploiting a unique panel of almost 22 million fares, we find that fares purchased on a holiday are 1.8% cheaper, supporting the conjecture that airlines price discriminate when the mix of purchasing passengers makes demand more elastic. These holiday booking discounts are also found to be larger in competitive markets, with the largest discounts reserved for flights within one-week of departure. In contrast to flights purchased on a holiday, we find that traveling on a holiday is more expensive. Consistent with peak-load pricing, we estimate travel premiums ranging from 41.6% to 82.0% on national holidays and from 4.6% to 35.0% on federal holidays

Purchase discounts on federal holidays: Evidence from the airline industry

Discounts during Thanksgiving and Christmas are common in a variety of retail markets. In this article, we examine whether holiday discounts extend to the airline industry. Exploiting a unique panel of almost 22 million fares, we find that fares purchased on a holiday for flights in the sixty-day period following the holiday are 1.8% cheaper, supporting the conjecture that airlines price discriminate when demand is lower than average or when the mix of purchasing passengers makes demand more elastic. These holiday discounts also do not vary with the level of competition, indicating that market structure has no impact on the magnitude of the holiday purchase discount