Dynamic oligopoly pricing: Evidence from the airline industry |
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| Institution: | 1. Bank of England, London, United Kingdom;2. Boston College, Newton, MA, USA;1. Department of Applied Economics and GIM, Universitat de Barcelona, Avinguda Diagonal 690, Barcelona 08034, Spain & Public-Private Sector Research Center - IESE Business School, University of Navarra, Spain;2. Departament d’Economia and CREIP, Universitat Rovira i Virgili, Avinguda de la Universitat 1, Reus 43204, Spain;1. Department of Logistics and Maritime Studies, Hong Kong Polytechnic University, Hong Kong;2. Department of Economics, University of Oxford, UK;3. Sauder School of Business, University of British Columbia, Canada |
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| Abstract: | We explore how pricing dynamics in the European airline industry vary with the competitive environment and with customer heterogeneity. We document three main findings. First, the rate at which prices increase towards the scheduled departure date is significantly reduced in more competitive markets. Second, the sensitivity of the intertemporal slope to competition increases in the heterogeneity of the customer base. Third, ex-ante predictable advance purchase discounts account for 83 percent of within-flight dispersion in prices and for 17 percent of cross-market variation in pricing dynamics. |
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