not all rivals look alike estimating an equilibrium model of the release date timing game a very serious game of strategy is at work a cross between chess and chicken which studio distribution chiefs play year round but with increasing intensity during the summer and holiday release period new york times december 6 1999 hubris hubris if you only think about your own business you think i ve got a good story department i ve got a good marketing department we re going to go out and do this and you don t think that everybody else is thinking the same way in a given weekend in a year you ll have five movies open and there s certainly not enough people to go around joe roth chairman of walt disney studios answering a question about the large number of major movies opening within days of each other los angeles times december 31 1996 i introduction the number of americans who go to the movies varies dramatically over the course of the year and sometimes more than doubles within a period of two weeks at the same time the first week accounts for almost 40 of the box office revenues of the average movie the combination of these two facts makes the timing of launching a new movie a major focus of attention for distributors of movies with virtually no subsequent price competition the movie s release date is one of the main short run vehicles by which studios compete with each other in this paper i develop and estimate a model of discrete games which allows me to analyze this release date timing game most empirical industry studies focus on price and quantity competition taking other product characteristics as given in many industries however prices play a very small role and competition is channeled through other product attributes the entertainment industry is a prime example competition among movies television programs or broadway shows is on nonmonetary product attributes such as content advertising and time therefore understanding competition in such industries requires a model that endogenizes some of these product attributes especially those that can be changed in the short run this paper provides a framework in which release decisions can be endogenized and nonprice competition can be analyzed the absence of price competition is useful because it allows the focus of the analysis to be on the timing dimension without relying on assumptions about the nature of the postrelease price competition 1 together with the frequent timing decisions associated with different movies this makes the motion picture industry quite attractive for empirical analysis of the timing game this industry however is not the only example in which timing decisions play a central role similar timing considerations are also important in the release decisions of books compact disks and other new products as well as in the scheduling decisions of major events television programs flight schedules and promotional sales 2 when taking on a new project distributors of movies typically plan for a friday release which falls within a relatively short window of time carefully chosen to match the type of the movie this makes the choice of the release date a very discrete one the exact friday within the season is generally determined by a strategic timing game played among distributors before each release season distributors scramble to release their movies on big holiday weekends when demand is high when doing so each distributor tries to release on the attractive holiday weekend and at the same time to deter competitors from doing the same the extent to which distributors are successful in doing so largely depends on the quality of the movies at their disposal and on the way they can compete with movies released by other studios thus modeling this timing game must account for the asymmetries among movies and for the variation in these asymmetries across release seasons specifically i develop and estimate a sequential move game with private information i assume that the observed release date decisions are the equilibrium outcome of such a game

optimal dynamic pricing of inventories with stochastic demand over finite horizons in many industries managers face the problem of selling a given stock of items by a deadline we investigate the problem of dynamically pricing such inventories when demand is price sensitive and stochastic and the firm s objective is to maximize expected revenues examples that fit this framework include retailers selling fashion and seasonal goods and the travel and leisure industry which markets space such as seats on airline flights cabins on vacation cruises and rooms in hotels that become worthless if not sold by a specific time we formulate this problem using intensity control and obtain structural monotonicity results for the optimal intensity resp price as a function of the stock level and the length of the horizon for a particular exponential family of demand functions we find the optimal pricing policy in closed form for general demand functions we find an upper bound on the expected revenue based on analyzing the deterministic version of the problem and use this bound to prove that simple fixed price policies are asymptotically optimal as the volume of expected sales tends to infinity finally we extend our results to the case where demand is compound poisson only a finite number of prices is allowed the demand rate is time varying holding costs are incurred and cash flows are discounted the initial stock is a decision variable and reordering overbooking and random cancellations are allowed

mergers and business model assimilation evidence from low cost airline takeovers this paper examines mergers that lead to an almost immediate replacement of the target firm s business model in favour of that of the acquiring firm we examine the post merger behaviour of the two leading european dedicated low cost airlines easyjet and ryanair each acquiring another low cost airline respectively go fly and buzz we find that both takeovers had an immediate and sustained impact on both the pricing structures and the extent of inter temporal price discrimination used on the acquired routes with early booking fares noticeably reduced and only very late booking fares increased overall the analysis points to a pro competitive effect of both takeovers as a consequence of the introduction of the acquiring firms business models and associated yield management pricing systems

making sense of ultra low cost flights vertical differentiation in two sided markets the business model of low cost carriers is now well established and accounts for a large share of western civil aviation particularly in europe to understand why it has proven so successful we develop a theoretical model that exploits the two sided nature of flights as connectors of supply and demand for goods and services other than traveling itself across physical space carriers offer flights of different quality and may sign agreements with suppliers of goods and services at the destination so as to subsidize and foster demand from the carriers travelers as in standard two sided markets customers travelers care about home and destination consumption and about the flight s quality hence beyond the thickness of the connected sides of the market the quality of the airline platform has an intrinsic value to travelers we show that only low income travelers fly with low cost airlines while no frills carriers are more likely to act as a platform than legacy airlines we study how the degree of subs

optimal dynamic pricing for perishable assets with nonhomogeneous demand we consider a dynamic pricing model for selling a given stock of a perishable product over a finite time horizon customers whose reservation price distribution changes over time arrive according to a nonhomogeneous poisson process we show that at any given time the optimal price decreases with inventory we also identify a sufficient condition under which the optimal price decreases over time for a given inventory level this sufficient condition requires that the willingness of a customer to pay a premium for the product does not increase over time in addition to shedding managerial insight these structural properties enable efficient computation of the optimal policy numerical studies are conducted to show the revenue impact of dynamic price policies price changes are set to compensate for statistical fluctuations of demand and to respond to shifts of the reservation price for the former our examples show that using optimal dynamic optimal policies achieves 2 4 7 3 revenue improvement over the optimal single price policy for the latter the revenue increase can be as high as 100 these results explain why yield management has become so essential to fashion retailing and travel service industries

equilibrium in hotelling s model of spatial competition we study hotelling s two stage model of spatial competition in which two firms first simultaneously choose locations in the unit interval then simultaneously choose prices under hotelling s assumptions uniform distribution of consumers travel cost proportional to distance inelastic demand of one unit by each consumer the price setting subgames possess equilibria in pure strategies for only a limited set of location pairs because of this problem pointed out independently by vickrey 1964 and d aspremont et al 1979 hotelling s claim that there is an equilibrium of the two stage game in which the firms locate close to each other is incorrect a result of dasgupta and maskin 1986 guarantees that each price setting subgame has an equilibrium in mixed strategies we first study these mixed strategy equilibria we are unable to provide a complete characterization of them although we show that for a subset of location pairs all equilibria are of a certain type we reduce the problem of finding an equilibrium of this type to that of solving three or fewer highly nonlinear equations at each of a large number of location pairs we have computed approximate solutions to the system of equations next we use our analytical results and computations to study the equilibrium location choices of the firms there is a unique up to symmetry subgame perfect equilibrium in which the location choices of the firms are pure in it the firms locate 0 27 from the ends of the market at this equilibrium the support of the subgame equilibrium price strategy is the union of two short intervals most of the probability weight is in the upper interval so that this strategy is reminiscent of occasional sales by the firms we also find a subgame perfect equilibrium in which each firm uses a mixed strategy in locations in fact in the class of strategy pairs in which the firms use the same mixed strategy over locations and this strategy is symmetric about 0 5 there is a single equilibrium in this equilibrium most of the probability weight of the common strategy is between 0 2 and 0 4 and between 0 6 and 0 8 there is a wide range of pure nash as opposed to subgame perfect equilibrium location pairs the subgame strategies in which each firm threatens to charge a price of zero in response to a deviation support all but those location pairs in which the firms are very close

time series forecasts of international travel demand for australia abstract this paper analyses stationary and non stationary international tourism time series data by formally testing for the presence of unit roots and seasonal unit roots prior to estimation model selection and forecasting various box jenkins autoregressive integrated moving average arima models are estimated over the period 1975 1 1989 4 for tourist arrivals to australia from hong kong malaysia and singapore the mean absolute percentage error and root mean squared error rmse are used as measures of forecast accuracy as the best fitting arima model is found to have the lowest rmse this model is used to obtain post sample forecasts tourist arrivals data for 1990 1 1996 4 are compared with the forecast performance of the arima model for each origin market the fitted arima model forecasts tourist arrivals from singapore for the period 1990 1 1996 4 very well although the arima model outperforms the seasonal arima models for hong kong and malaysia the forecasts of tourist arrivals are not as accurate as in the case of singapore

dynamic responses to changing demand a model of the reallocation process in small and large municipalities in norway local government priorities between local services are analysed in a community preference model emphasizing income effects and demographic factors the model is built into a partia adjustment framework with endogenous speed of adjustment to study the dynamic responses of local governments to shifting demand the empirical analysis of the reallocation process separates between small and large municipalities in terms of population size serious sluggishness of the adjustment is documented with large municipalities experiencing stronger inertia than the small the small authorities have been able to respond more effectively to the restructuring pressure from demographic shift

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 u k and the republic of ireland price dispersion is measured by the gini coefficient calculated using fares posted on the internet at specific days before takeoff we control for passengers heterogeneity in their purpose of travel as well as for such peak periods as christmas and easter our finding of a negative correlation between competition and price dispersion suggests that competition is likely to hinder the airlines ability to price discriminate although this effect appears to be lessened in peak periods

measuring persistence in croatian tourism evidence from the adriatic region this study examines the degree of persistence in foreign tourist arrivals and overnight stays for seven croatian coastal counties over the period january 1998 to december 2013 using fractional integration techniques our findings reveal that the respective regional tourism indicators exhibit seasonal unit roots which require seasonal first differences to render the respective time series stationary with respect to the long run evolution of the respective time series both the parametric and semi parametric fractional integration approaches show the degree of persistence is greater than zero but significantly less than one for the majority of the coastal counties impulse response analysis reveals indeed shocks to the deseasonalized time series either foreign tourist arrivals or foreign tourist overnight stays appear short lived with the exception of istria and primorje gorski kotar counties policy implications of the results are also discussed

does competition reduce price dispersion new evidence from the airline industry we analyze the effects of competition on price dispersion in the airline industry using panel data from 1993 q1 through 2006 q3 competition has a negative effect on price dispersion in line with the textbook treatment of price discrimination this effect is pronounced for routes with consumers characterized by relatively heterogeneous elasticities of demand on routes with a homogeneous customer base the effects of competition on price dispersion are smaller our results contrast with those of borenstein and rose who found that price dispersion increases with competition we reconcile the different results by showing that the cross sectional estimator suffers from omitted variable bias

i ve been to bali too and i will be going back are terrorist shocks to bali s tourist arrivals permanent or transitory international visitor arrivals to bali are examined using univariate and panel lagrange multiplier lm unit root tests with one and two structural breaks to ascertain if shocks to the time path of tourist arrivals are permanent or transitory the univariate lm unit root tests with one and two structural breaks fail to reject the null hypothesis of a unit root in international visitor arrivals to bali however the panel lm unit root tests with one and two structural breaks applied to a panel of bali s 11 major source markets reject the null and support the alternative hypothesis of a joint trend stationary series with transitory shocks this result suggests that the effects of the recent terrorist acts on bali on the growth path of tourist arrivals from major markets are only transitory and that as a consequence bali s tourism sector is sustainable in the long run

public sector efficiency leveling the playing field between oecd countries in this paper we seek a robust methodology for the measurement of the relative public sector efficiency of 19 oecd countries over the period 1980 2000 we estimate relative efficiency scores for five disaggregated accounts of public spending as well as for aggregate public spending then we use a semi parametric econometric method to isolate the impact of government inefficiency from the inefficiency arising from the socioeconomic environment and luck to verify the validity of our index we use it to examine a number of well established relationships in the public choice literature which have only been tested using local government data

price discrimination in the airline market the effect of market concentration we test the hypothesis that price discrimination increases with competition in the airline market using a large cross section of tickets offered by several carriers on various routes we approximate price discrimination with marginal implicit prices of ticket restrictions that carriers typically use to price discriminate saturday night stayover re quirements and advanced purchase discounts we find that the restrictions are associated with lower airfares but that the discounts are smaller on routes with higher market concentration the results suggest that price dispersion attributed to ticket restrictions increases as markets becomemore competitive

an analysis of dynamic price discrimination in airlines 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

are australia s tourism markets converging in this paper we make an important contribution towards understanding australia s tourism industry by examining whether or not australia s tourism markets are converging we define convergence as the reduction in tourist arrivals differential which is calculated as the difference between total visitor arrivals to a country and visitor arrivals from a particular tourist source market we analyze australia s thirteen major tourist source markets using monthly data over the period january 1991 to september 2003 to test for convergence we use the univariate and panel lagrange multiplier lm tests our main finding is that when we allow for two structural breaks in the data series both univariate and panel lm tests provide strong evidence for convergence of australia s tourism markets this implies that policies aimed at attracting visitor arrivals from any one of australia s thirteen tourist source markets will boost the volume of tourists coming into the country

the principle of minimum differentiation holds under sufficient heterogeneity the so called principle of minimum differentiation stated by hotelling has been challenged by many authors this paper restores the principle by showing that n firms locate at the center of the market and charge prices higher than the marginal cost of production when heterogeneity in consumers tastes is large enough

the impact of dynamic price variability on revenue maximization abstract the objective of this article is to analyze the effect of dynamic price variability on revenue maximization while dynamic pricing is a common practice in tourism this is the first comprehensive study on the relationship between price variability and revenue maximization within the framework provided by the literature on intertemporal price discrimination price fairness inventory controls and organizational culture this research proposes and applies a new hedonic revenue model on a sample of 21 687 observations the findings suggest that higher dynamic price variability leads to higher hotel revenues strategic room unavailability and review rating also exert a clear positive revenue impact overall the benefits from charging different prices for the same service intertemporal price discrimination and limiting the number of units available before the demand is known inventory control outweigh the potential negative effects of price unfairness and organizational culture the paper concludes by providing actionable levers for hospitality managers

separating between unobserved consumer types evidence from airlines we propose an alternative approach to identify unobserved consumer types and assess whether firms price discriminate unlike other screening schemes that rely on quantity discounts or product differentiation in our finite mixture structure individuals have unit demands and the product is homogeneous we implement the model using an original u s airlines data set the results support the existence of two demand types the high type business traveler is less price sensitive has a higher valuation and pays a higher price than the low type tourist the proportion of high types also increases as the departure date nears jel c23 l93 r41

localized market power in the u s airline industry this paper tests whether the observed dominance of most city pair markets and airports in the u s domestic airline industry by single carriers confers any pricing power on the dominan t firms the results of fixed effects estimation indicate that airport dominance by a carrier does confer upon it substantial pricing power whereas dominance at the route level seems to confer no such pricing power additionally the authors find a positive yet small correlation between both route concentration and price and airport concentration and price the quantitative importance of airport dominance reveals that the most promising direction for public polic y aimed at improving the industry s performance is to ensure equal acc ess to sunk airport facilities copyright 1993 by mit press

using yield management to shift demand when the peak time is unknown traditional peak load and stochastic peak load models assume firms have prior information about when peak demand occurs however price dispersion such as is typically used by firms practicing yield management can achieve some of the same efficient demand shifting even when the peak time is unknown equilibrium price dispersion arises because of stochastic demand and price rigidities but a previously unexplored benefit of price dispersion is its ability to reduce equilibrium capacity costs through demand shifting the model also suggests how yield management now more commonly called revenue management might actually benefit business travellers contrary to the popular prejudice

an applied general equilibrium analysis of the economic effects of tourism in a quite small quite open economy a computable general equilibrium model is used to project the effects of tourism on the industrial and regional structures of the australian economy the most striking conclusion is that queensland usually thought to be the most tourism oriented of the australian states would be a net loser from an economy wide expansion of tourism as well as having a relatively large share of its gsp accounted for by tourist oriented activities queensland is also relatively heavily dependent on agriculture and mining traditional export sectors which are crowded out by the expansion of international tourism

cointegration analysis of quarterly tourism demand by hong kong and singapore for australia hong kong and singapore are two of the most important and fastest growing markets for tourists to australia the purpose of this paper is to investigate movements in the long run demand for tourist travel by these two origin countries for australia some of the leading macroeconomic variables examined to explain tourism demand are incomes in hong kong and singapore tourism prices in australia and transportation costs and exchange rates between the two countries and australia seasonally unadjusted quarterly data are used for hong kong for the period 1975 1 1996 4 and for 1980 4 1996 4 for singapore several proxy variables are used for the incomes of tourists from hong kong and singapore to explain quarterly tourist arrivals to australia the augmented dickey fuller test for unit roots is examined in the univariate framework and johansen s maximum likelihood procedure is used to test for cointegration and to estimate the number of cointegrating vectors error correction models are estimated to exp

has ryanair s pricing strategy changed over time an empirical analysis of its 2006 2007 flights abstract this paper analyzes the question of whether ryanair s pricing strategies have changed over time we create a panel dataset of fares for all of ryanair s european flights over a two year period from 1 january 2006 to 31 december 2007 we calculate the average fare over a 90 day period prior to departure and the intensity of dynamic pricing for each flight in the panel in particular analysing the changes in these variables observed between pairs of equivalent flights our results show that overall both average fares and the intensity of dynamic pricing decreased in 2007 more than one third of flights saw a price reduction of more than 10 now that it has become the dominant low cost carrier in europe ryanair appears to be softening its dynamic pricing activities on existing routes typically employed to stimulate additional touristic demand thus booking in advance becomes relatively more expensive

dynamic competition with random demand and costless search a theory of price posting this paper studies a dynamic model of perfectly competitive price posting under demand uncertainty firms must produce output in advance after observing aggregate sales in prior periods firms post prices for their unsold output in each period the demand of a new batch of consumers is randomly activated existing customers who have not yet bought and then new customers arrive at the market in random order observe the posted prices and either purchase at the lowest available price or delay their purchase decision we construct a sequential equilibrium in which the output produced and its allocation across consumers is efficient thus consumers endogenously sort themselves efficiently with the highest valuations purchasing first transaction prices in each period rise continuously as firms become more optimistic about demand followed by a market correction by the last period prices are market clearing

strategic and tactical price decisions in hotel revenue management abstract dynamic pricing techniques allow using a number of variables in a tactical way compared to standard catalogue prices this study merges in a conceptual model the relevance of the tactical and the strategic dimension of these variables classified according to their tangible reputational or contextual nature to empirically validate the hypotheses a database of 21 596 price observations was retrieved from booking com the study presents a hedonic price function using the shapley owen decomposition of the r squared to elicit the importance of each group of factors further a hierarchical cluster analysis measures the presence of heterogeneity across operators the results show that online reputation is gaining importance over the traditional star rating despite the tangible variables remain of paramount importance the findings suggest the relevant role of contextual variables in short run price variations the players operating in the tourism and hospitality industries should integrate these findings when designing pricing strategies

product line rivalry and firm asymmetry we extend the brander and eaton 1984 model of product line rivalry to study the effects of asymmetry between firms on the equilibrium outcome our analysis shows that market interlacing can emerge as the equilibrium outcome even in situations where market segmentation would have been the only possible outcome had the firms been symmetric we identify two strategic factors that lead to such an outcome

testing for the random walk hypothesis in the case of visitor arrivals evidence from indian tourism testing for the random walk hypothesis which asserts that a series is a non stationary process or a unit root process in the case of visitor arrivals has important implications for policy if for instance visitor arrivals are characterized by a unit root then it implies that shocks to visitor arrivals are permanent however if visitor arrivals are without a unit root this implies that shocks to visitor arrivals are temporary this study provides evidence on the random walk hypothesis for visitor arrivals to india using the recently developed im et al 2003 and maddala and wu 1999 panel unit root tests both tests allow one to reject the random walk hypothesis implying that shocks to visitor arrivals to india from the 10 major source markets have a temporary effect on visitor arrivals

spatial competition and price leadership in the stackelberg price leader price follower model each firm is typically better off as a follower than as a leader in this paper we show that introducing the spatial dimension provides a means of endogenising the role of price leadership furthermore the leader follower framework yields existence of a price and location equilibrium in the hotelling spatial model of competition where none exists under the original specification we first analyse the original hotelling model by determining reaction functions for firms this approach allows the model to be fully characterised and affords an intuitive explanation of the non existence of a price equilibrium for certain locations the reaction functions are then used to determine the solution when one firm adopts the stackelberg leadership role contrary to the existing predictions of the simple spatial duopoly model it is found that the outcome is asymmetric in terms of stackelberg equilibrium locations prices and profits with the first firm in the market enjoying higher profits than the subsequent entrant the equilibrium involves one firm locating at the mid point of the market this outcome is also appealing as it corresponds to the entry deterring and monopoly solutions

social comparisons in oligopsony abstract a large body of evidence suggests that social comparisons matter for workers valuation of the wage they receive the consequences of social comparisons in imperfectly competitive labor markets are less well understood we analyze an oligopsonistic model of the labor market where workers derive dis utility from comparing their own wage with wages paid at other firms as social comparisons become more prevalent all workers are paid higher wages the wage distribution becomes more equal and employment shifts to high productivity firms moreover the total wage bill and output increase while aggregate profits decline overall welfare rises our theoretical results have implications for estimating the elasticity of the labor supply curve facing a firm

wage formation in norwegian manufacturing an empirical application of a theoretical bargaining model abstract this paper is concerned with the modelling of quarterly wage inflation in norway we develop a bargaining model which we believe is a sound theoretical base for econometric work in this field among other things the model does not lend support to the practice of imposing phillips curve restrictions on the data without further test a parsimonious model is estimated and is made subject to misspecification tests there is no natural rate of unemployment or nairu in our model any constant unemployment rate is compatible with a constant rate of inflation and a real wage growth equal to the productivity growth however the level of the real wage path will be higher the lower is the rate of unemployment

envy fairness and political influence in local government wage determination evidence from norway the main question in this paper is do wages of low skilled workers in norwegian local governments adjust to clear the labor market for such workers or are the wages affected by trade unions comparing their wages with other wages inside the local governments the main empirical findings are as follows first wages of low skilled local government employees respond not to wages in the external labor market but to wages of higher skilled and higher paid workers inside the local government second wages are positively associated with the share of socialist politicians in the local council these results are interpreted as support for a union model with internal pay comparisons in norwegian local governments copyright 1995 by the london school of economics and political science

low cost airlines and online price dispersion abstract this paper presents a new form of online pricing tactic where airlines post at the same time and for the same flight fares in different currencies that violate the law of one price unexpectedly for an online market price dispersion may be accompanied by a hidden discount that tends to persist in the period preceding a flight s departure the econometric analysis reveals that airlines post dispersive fares in less competitive routes with more heterogeneous demand furthermore temporal persistence of intra firm fare dispersion suggests that it is an equilibrium phenomenon engendered by the airlines need to manage stochastic demand conditions for a specific flight

revisiting the convergence hypothesis for tourism markets evidence from turkey using the pairwise approach abstract this paper empirically revisits the tourism markets convergence hypothesis narayan 2006 for the case of turkey by employing the newly developed pairwise approach to the analysis of stochastic convergence pesaran 2007 pesaran et al 2009 this new approach allows for unit root tests to be conducted on all possible pairs of tourist arrival differentials across turkey s 20 major tourist source markets thus avoiding the need to choose a base source market or total tourist arrivals figure as the benchmark using monthly data over the period january 1996 to december 2009 the main finding is that despite considerable co movement of international tourist arrivals in turkey there is no evidence of long run convergence among turkey s major tourism markets cluster based club convergence analyses alongside bivariate pairwise estimations confirm the lack of convergence and highlight specific tourist source markets with considerable untapped potential these findings have profound policy implications for turkey s inbound tourism planning and promotion

dynamic pricing advance sales and aggregate demand learning in airlines this paper uses a unique u s airlines panel data set to empirically study the dynamic pricing of inventories with uncertain demand over a finite horizon i estimate a dynamic pricing equation and a dynamic demand equation that jointly characterize the adjustment process between prices and sales as the flight date nears i find that the price increases as the inventory decreases and decreases as there is less time to sell consistent with aggregate demand learning and price adjustment demand shocks have a positive and much larger effect on prices than the positive effect of anticipated sales

optimal pricing policies for perishable products in many industrial settings managers face the problem of establishing a pricing policy that maximises the revenue from selling a given inventory of items by a fixed deadline with the full inventory of items being available for sale from the beginning of the selling period this problem arises in a variety of industries including the sale of fashion garments flight seats and hotel rooms we present a family of continuous pricing functions for which the optimal pricing strategy can be explicitly characterised and easily implemented these pricing functions are the basis for a general pricing methodology which is particularly well suited for application in the context of an increasing role for the internet as a means to market goods and services

new empirical generalizations on the determinants of price elasticity abstract the importance of pricing decisions for firms has fueled an extensive stream of research on price elasticities in an influential meta analytical study tellis 1988 summarized price elasticity research findings until 1986 however empirical generalizations on price elasticity require modifications because of 1 changes in market characteristics i e characteristics of brands product categories and economic conditions and 2 changes in the research methodology used to assess price elasticities therefore the authors present a meta analysis of price elasticity with new empirical generalizations on its determinants across a set of 1851 price elasticities based on 81 studies the average price elasticity is 2 62 a salient finding is that over the past four decades sales elasticities have significantly increased in magnitude whereas share and choice elasticities have remained fairly constant the authors find that accommodating price endogeneity has a strong magnitude increasing impa

the structure of tourist expenditure in fiji evidence from unit root structural break tests the central aim of this paper is to investigate whether shocks to fiji s tourism industry have a permanent effect or a transitory effect on tourist expenditure in fiji to accomplish this aim the zivot and andrews 1992 one break test and the lumsdaine and papell 1997 two break tests are used the one break and two break tests reveal 1987 the year of the military coups in fiji as the year of the break moreover it is possible to reject the unit root null leading to the conclusion that shocks to fiji s tourism industry have a transitory effect on tourist expenditure in fiji

airline pricing under different market conditions evidence from european low cost carriers abstract traditional theories of airline pricing maintain that fares monotonically increase as fewer seats remain available on a flight 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 and measure its effectiveness we find that reduction of the offered airfare by one standard deviation raises a flight s load factor on average by 2 7 percent a measure unaffected by the intensity of competition in a route furthermore yield management interventions are less effective the higher the share of leisure holiday and visiting friends and relatives traffic on the route this result runs counter to the common perception of leisure passengers being more responsive to price changes

multi dimensional price elasticity for leisure and business destinations in the low cost air transport market evidence from easyjet this study investigates the price elasticity of demand in the european low cost carrier lcc industry by analysing internet fares for all easyjet flights departing from the amsterdam schiphol airport towards 21 european destinations between march and september 2015 results suggest that the price elasticity of demand greatly varies across different dimensions ranging from 0 535 for the business oriented route of hamburg to 1 915 for the leisure oriented route of split price elasticity is also found to be higher for reservations made more days in advance for reservations and departures occurring on weekends and for flights taking off during lunchtime and in the summer period all results are consistent with the different behaviours of leisure and business passengers and the ongoing increase in the business component of the lcc passenger mix

a dynamic model of quality competition with endogenous prices abstract we develop a dynamic model of price and quality competition in order to analyze the effects of competition on quality provision and to which extent an unregulated market is able to provide a socially optimal quality level our model combines a differential game approach with a hotelling spatial competition framework and our analysis applies in particular to industries such as long term care health care child care and education if providers nursing homes hospitals schools nurseries use closed loop decision rules which imply strategic interaction over time we show that although increased competition leads to higher quality in the steady state quality provision is nevertheless lower than under open loop rules and also suboptimally low from a welfare perspective thus our analysis identifies dynamic strategic interaction between competing providers as a potential source of inefficiency in quality provision

convergence in energy consumption per capita among asean countries abstract we test for convergence in energy consumption per capita among asean countries over the period 1971 to 2011 using the panel kpss stationarity test and panel lagrange multiplier lm unit root test the results for the panel stationarity and unit root tests with structural breaks find support for energy convergence in asean

modelling multivariate international tourism demand and volatility international tourism demand which is typically measured as tourist arrivals to australia has experienced dramatic fluctuations in recent years due to changes in the economic financial and political environment however variations in tourism demand specifically the conditional variance or volatility have not previously been investigated in the tourism literature an analysis of such volatility is essential for investigating the effects of shocks in tourism demand models this paper models the conditional mean and conditional variance of the logarithm of the monthly tourist arrival rate from the four leading tourism source countries to australia namely japan new zealand uk and usa using three multivariate static or constant conditional correlation ccc volatility models specifically the symmetric ccc mgarch model of rev econ stat 72 1990 498 symmetric vector arma garch model of econ theory 19 2003 278 and asymmetric vector arma agarch model of australasian meeting of the econometric society brisbane australia 2002 monthly data from july 1975 to 2000 are used in the empirical analysis the results suggest the presence of interdependent effects in the conditional variances between the four leading countries and asymmetric effects of shocks in two of the four countries this is an important result as it emphasizes interdependencies between major tourism source countries as well as the asymmetric effects of positive and negative shocks in tourism demand the estimated ccc matrices for the three models are not substantially different from each other which confirms the robustness of the estimates to alternative specifications of the multivariate conditional variance

the efficiency of advance purchase discounts in the presence of aggregate demand uncertainty abstract the pricing behavior of two airlines is examined one is operated by a welfare maximizing social planner the other by an unregulated monopolist total capacity is fixed and aggregate demand is uncertain it is shown that advance purchase discounts can assist in attaining an efficient allocation of capacity when it is not feasible to operate a spot market on the day of the flight it is further shown that the planner may offer larger or smaller discounts than the monopolist

revealed yardstick competition local government efficiency patterns in norway this paper investigates whether the production efficiency of norwegian local governments exhibits a spatial pattern that is compatible with the hypothesis of yardstick competition in order to check whether yardstick competition is really responsible for the observed spatial pattern and rule out alternative theoretical explanations the paper exploits unique information from a survey on local politicians attitudes towards comparative evaluation of local bureaus performances against other jurisdictions benchmarking merging the latter information with the observed interdependence in efficiency the paper provides evidence that comparative performance evaluation generates positive spatial auto correlation in local efficiency indicators

theory and experiments on spatial competition we present theoretical and experimental results on spatial competition between two firms firms choose locations simultaneously along a line representing a linear market identical consumers with non increasing demand functions are uniformly distributed along this line we solve for symmetric equilibrium payoffs in an infinitely repeated game for the case of linear demand and an arbitrary discount factor the set of equilibriums found includes both competitive and collusive payoffs in laboratory experiments in which the final period was unknown to the players in advance we observed both competitive and collusive outcomes non binding communication led to collusion

are shocks to tourism transitory at business cycle horizons the goal of this article is to propose a theoretical framework based on a macro model that can be used to examine the relative importance of permanent and transitory shocks in explaining variations in tourist expenditure and gross domestic product gdp at business cycle horizons we estimate the model for australia our findings reveal a common trend and common cycle relationship among tourist expenditure and gdp and the variance decomposition analysis of shocks reveals that at business cycle horizons permanent shocks explain the bulk of the variations in output while transitory shocks explain the bulk of the variations in tourist expenditure

fiscal institutions and wage bargaining in the local public sector in a theoretical analysis of the properties of different wage setting and financing systems in the local public sector two financing systems are considered a benchmark model with local financing through local taxes is compared with a system of centralized financing through grants where taxes are decided at the national level it is shown that the wage outcomes under centralized financing depend heavily on the order of moves in the budgetary game between the central and local levels jel classification h23 j45

cost disease in defense and public administration baumol and politics william baumol s model predicts a steady increase in relative public sector prices or costs because of the combination of slow productivity growth and wage growth similar to sectors wherein productivity is growing more quickly in this paper we extend the baumol model with political variables and analyze price growth in defense and public administration using norwegian data we find strong support for the mechanism of the baumol model since manufacturing productivity is the most important determinant of relative public sector prices greater political fragmentation has also contributed to the price growth but its quantitative effect is smaller than that of manufacturing productivity an analysis of a labor intensive private service restaurants and cafes supports the broader relevance of the baumol mechanism and the validity of the estimated effect of political fragmentation on the two sectors considered herein

why do all the flights leave at 8 am competition and departure time differentiation in airline markets abstract theoretical models of spatial product differentiation indicate that firms face two opposing incentives 1 minimize differentiation in order to steal customers from competitors and 2 maximize differentiation in order to reduce price competition using data on u s airline departure times from 1975 when fares were regulated and 1986 when fares were not regulated we empirically estimate the effect of competition on differentiation we find a negative relationship in both periods in 1986 however reductions in exogenous scheduling constraints increase differentiation implying that firms may be differentiating their products where possible to reduce price competition this effect is not apparent in the 1975 data

wage rivalry and insider outsider relations evidence for skilled and unskilled men in denmark a model with trade union rivalry is used to derive wage reaction functions which are then estimated for skilled and unskilled men in denmark the results show substantial differences in wage determination between the two groups of workers in the short term but once the wage wage spiral starts to operate some of the differences disappear wage setting for unskilled men is subject to insider outsider effects whereas it is uncertain whether wage determination for skilled workers suffers from such imperfections copyright 1992 by the editors of the scandinavian journal of economics

can price competition dominate market segmentation this note analyses duopoly competition in a two stage location price game while allowing each firm to establish a couple of outlets both the circle and the line model of spatial competition are considered our main result is clear cut in equilibrium neither firm will take up the opportunity of opening two stores this is a warning that market segmentation i e competition from multiple outlets might not be attractive at all because it entails more intense price competition

search at the margin we extend search theory to multiple indivisible units and perfectly divisible assets solving them respectively with induction and recursion buyer demands and prices are random and the seller can partially exercise orders with divisible assets the bellman value function is increasing and strictly concave and the optimal reservation price falls in the position reflecting increasing holding costs opportunity cost of delaying optionality for inframarginal units the marginal value exists and is strictly convex with a falling purchase cap density our model is amenable to price quantity bargaining e g greater buyer bargaining power is tantamount to greater search frictions

prices prices and prices a study in the airline sector abstract this article creates and empirically analyzes a dynamic pricing framework the model includes the main theories on prices in the literature and dynamically analyzes how companies change their pricing policies according to different circumstances through the use of regressions the article shows the relative long and short term impact on pricing equations strategic versus operational matters and on production conditions versus demand perspectives in the setting of operational prices in addition it highlights how the proportions of these pricing perspectives change in the airline sector according to the effect of the environment on the configuration of the strategy determined by monthly and hourly seasonality and also according to the nature of this competitive strategy determined by the characteristics of the company and the destination airport the results confirm our framework and show how firms combine the different perspectives in their pricing strategies

advance purchase discounts and monopoly allocation of capacity optimal pricing by a monopoly airline that faces capacity constraints during the peak demand period is studied the existence of capacity constraints means that in order to expand output the airline must divert demand from the peak period to the off peak period a particular advance purchase discount policy is shown to be the profit maximizing method of selling tickets if the advance purchase requirement were infeasible output and total surplus would both be lower jel l12 substantial discounts for air travel are generally available to travelers who are willing to purchase tickets a week or more in advance of the departure date this paper demonstrates why the imposition of an advance purchase requirement may be a profit maximizing strategy for a monopoly airline facing capacity constraints during times of peak demand 1 the practice of imposing an advance purchase requirement on discount tickets is also placed in a favorable light in terms of its impact on social

equilibrium price dispersion under demand uncertainty the roles of costly capacity and market structure when capacity is costly and prices are set in advance firms facing uncertain demand will sell output at multiple prices and limit the quantity available at each price i show that the optimal price strategy of a monopolist and the unique pure strategy nash equilibria of oligopolists both exhibit intrafirm price dispersion moreover as the market becomes more competitive prices become more dispersed a pattern documented in the airline industry while generating similar predictions the model differs from the revenue management literature because it disregards market segmentation and fare restrictions that screen customers

low cost pricing strategies in leisure markets abstract the practice of dynamic pricing typical of low cost carriers is generally regarded as a form of price discrimination between leisure and business travellers on a single flight or route the same may not be true across different routes because of the different incidence of business travellers if price increases in the 15 days prior to departure are meant to discriminate business demand leisure demand should account for earlier price variations in the present study we used a database containing the daily fare over the 3 months prior to each flight operated by easyjet during 2009 for each route we defined the leisure index as the difference between the price rates of change during the 90 days and 15 days prior to departure overall business routes had lower average prices per km while leisure routes showed less dynamic price behaviour with higher minimum and lower maximum prices per km

a taxonomy and research overview of perishable asset revenue management yield management overbooking and pricing this paper proposes the term perishable asset revenue management to denote the field that combines the areas of yield management overbooking and pricing for perishable assets after summarizing the characteristics common to problems in this field the paper discusses the objectives and constraints faced by decision makers then it offers a comprehensive taxonomy with 14 different elements and reviews the research that has been done related to each element finally it suggests some important areas of future research that can help bridge the gap between theory and application

hubs and high fares dominance and market power in the u s airline industry this article estimates the importance of route and airport dominance in determining the degree of market power exercised by an airline the results indicate that an airline s share of passengers on a route and at the endpoint airports significantly influences its ability to mark up price above cost the high markups of a dominant airline however do not create much of an umbrella effect from which carriers with smaller operations in the same markets can benefit the article suggests a number of possible explanations for this asymmetry

public sector efficiency the roles of political and budgetary institutions fiscal capacity and democratic participation the purpose of this paper is to investigate whether efficiency in public service provision is affected by political and budgetary institutions fiscal capacity and democratic participation in order to address this issue we take advantage of a new global efficiency measure for norwegian local governments we find that high fiscal capacity and a high degree of party fragmentation contribute to low efficiency in addition there is some evidence that democratic participation increases efficiency while a centralized top down budgetary procedure is associated with low efficiency

network effects congestion externalities and air traffic delays or why not all delays are evil we examine two factors that explain air traffic congestion network benefits due to hubbing and congestion externalities while both factors impact congestion we find that the hubbing effect dominates empirically hub carriers incur most of the additional travel time from hubbing primarily because they cluster their flights in short time spans to provide passengers as many potential connections as possible with a minimum of waiting time non hub flights at the same hub airports operate with minimal additional travel time these results suggest that an optimal congestion tax might have a relatively small impact on flight patterns at hub airports jel l2 l5 l9 d6

dynamic oligopoly pricing evidence from the airline industry we explore how pricing dynamics in the european airline industry vary with the competitive environment our results highlight substantial variations in pricing dynamics that are consistent with a theory of intertemporal price discrimination first the rate at which prices increase towards the scheduled travel date is decreasing in competition supporting the idea that competition restrains the ability of airlines to price discriminate second the sensitivity to competition is substantially increasing in the heterogeneity of the customer base reecting further that restraints on price discrimination are only relevant if there is initial scope for price discrimination these patterns are quantitatively important explaining about 83 percent of the total within ight price dispersion and explaining 17 percent of the observed cross market variation of pricing dynamics

exploring the regional distribution of tourism and the extent to which there is convergence abstract in this paper we test the hypothesis of convergence in a set of twelve of the main tourism source markets of spain over a time period that ranges from january 2000 to september 2015 we analyse the potential convergence by following an econometric strategy consisting of three different methodologies firstly we test for the presence of full convergence in the dataset by means of the panel stationary test developed by hadri 2000 next we conduct a robustness check for the full convergence hypothesis by considering the potential existence of structural breaks in the dataset through the test proposed by carrion i silvestre et al 2005 finally the hypothesis of club convergence philips and sul 2007 is also tested the results point to absence of full convergence even when controlling for structural breaks while three different clubs of convergence are found we discuss potential policy implications that can be extracted from these results

living by the golden rule multimarket contact in the u s airline industry this paper examines empirically the effects of multimarket contact on pricing in the u s airline industry the analysis of the time series and cross sectional variability of airline fares in the 1000 largest domestic city pair routes reveals the presence of statistically significant and quantitatively important multimarket effects fares are higher in city pair markets served by carriers with extensive interroute contacts these findings are consistent with the claims of industry experts that airlines live by the golden rule i e that they refrain from initiating aggressive pricing actions in a given route for fear of what their competitors might do in other jointly contested routes during his testimony mr steven b elkins senior director of marketing systems development for northwest airlines cited an example in which northwest lowered fares on night flights that were flying with empty seats in a number of routes from minneapolis and upper midwest cities to various west coast cities he said that continental airlines swiftly responded by cutting prices in important northwest markets mr elkins s memo advises northwest pricing analysts we will live by the golden rule in his testimony he explained that the golden rule in that context was that i did not want my pricing analyst initiating actions in another carrier s market like chicago for fear of what that other carrier might do to retaliate wall street journal october 9 1990 p b1

do carriers internalize congestion costs empirical evidence on the internalization question abstract economists have long suggested overhauling the existing u s airport landing departure fees to reflect market valuations of scarce runway capacity economists however do not agree on the optimal congestion based pricing scheme while some researchers advocate for a uniform congestion fee regardless of a carrier s airport market share others suggest that airport tolls should only reflect the congestion costs imposed on other carriers this paper uses ten years of ontime performance data to empirically determine if carriers internalize congestion costs while previous researchers e g mayer christopher sinai todd 2003a network effects congestion externalities and air traffic delays or why all delays are not evil american economic review 93 4 1194 1215 use excess travel time to measure flight delays the contribution of this paper is the addition of on time arrival and delay measures based on actual versus scheduled arrival and departure times we find that estimates based on these new delay measures reverse earlier findings by mayer and sinai 2003a network effects congestion externalities and air traffic delays or why all delays are not evil american economic review 93 4 1194 1215 and hence imply that carriers are not internalizing flight congestion costs

efficient spatial competition abstract game theoretic models of spatial competition usually assume that firms set prices after their choices of locations rather than make this assumption this paper uses the core to model the competition between the firms two conditions are shown to be sufficient for efficient spatial competition the first is that the firms location choices satisfy a no externalities condition the second is that the second stage game satisfy a separable value condition namely that the value gains from trade can be created on a buyer by buyer basis this approach yields two further benefits first efficient location can be stable in situations with arbitrary distributions of buyers arbitrary willingness to pay functions and completely general location spaces second efficiency in location games can be shown to be related to the second welfare theorem

combined effects of capacity and time on fares insights from the yield management of a low cost airline abstract based on two strands of theoretical research this paper provides new evidence on how fares are jointly affected by in flight seat availability and purchasing date as capacity based theories predict it emerges that fares monotonically and substantially increase with flight occupancy after controlling for capacity utilization our analysis also supports time based theories indicating a u shaped temporal profile over a two month booking period as well as a sharp increase in fares in the two weeks prior to departure

demand elasticity estimates for new zealand tourism demand elasticities for new zealand tourism are estimated for 16 different international visitor segments segments are differentiated by origin purpose of visit and travel style elasticities for both international visitor arrivals and on the ground expenditure per arrival are estimated for each segment using time series data in general on the ground consumption per arrival is more price sensitive than number of arrivals and asian market segments are found to be more price sensitive both in terms of arrivals and on the ground expenditure compared to international visitors from other regions an application of the results is presented giving the total effect of exchange rate changes on expenditure by international visitors in new zealand and management implications are discussed

stationarity of health expenditures and gdp evidence from panel unit root tests with heterogeneous structural breaks this paper re examines the stationarity of national health care expenditures and gdp in a panel setting utilizing data from 20 oecd countries over the period from 1960 to 1997 previous research in this area has recognized the drawback of not allowing for structural breaks in their unit root tests and noted that their empirical results may not be robust we advance the literature by utilizing a recently developed panel lm unit root test that allows for heterogeneous level shifts in contrast to previous analyses that did not consider breaks our results reject the unit root null hypothesis for both series