Dynamic Airline Pricing and Seat Availability

Abstract: 

Dynamic Airline Pricing and Seat Availability

Airfares typically rise as the departure date approaches. This is commonly attributed to arrival type pricing, or price discrimination according to how far in advance consumers are willing to purchase tickets. While the overall price trend is positive, there is substantial day-to-day variation in fares as seats are limited and airlines are uncertain as to whether a particular flight will sell out. Fares tend to rise when a sellout is likely and fall otherwise due to stochastic quantity pricing. This research studies how the arrival pattern of consumer types and the aggregate uncertainty about demand jointly affect pricing and the allocation of capacity across time. The researchers model prices as being set by a forward-looking monopolist facing stochastic demand with finite capacity and finite time to sell. They are estimating the model using an original dataset that tracks the time path of fares and seat availabilities at the flight level. With the model estimates, the researchers will disentangle key interactions between arrival type and stochastic quantity pricing.

Group name: 
holmest