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

strategic pricing with customer rationing the case of primary metals firms in primary metal industries often charge subcompetitive prices and in periods of high demand they may ration their customers a model is developed to ex plain these empirical regularities in the model firms with market power are aware that the price they charge today affects their demand tomorrow in addition the strategic interaction among firms reinforces this intertemporal effect in the equilibrium of the two stage game oligopolists can price below marginal cost and when capacity constraints are introduced the equilibrium can involve rationing model predictions are assessed using market structure and technology data for several primary metal industries

was schumpeter a marxist this article explores the degree to which joseph schumpeter may be regarded as a follower of karl marx it argues that schumpeter and marx shared a common vision including agreement on the growth in the size of the firm and in industrial concentration the inherent instability of capitalism and the inevitability of crises and the eventual destruction of capitalist institutions and the arrival of a socialist form of economic organization as a result of the working out of the internal logic of capitalist evolution schumpeter s main qualification is his insistence upon the importance of temporal lags i e social forms that persist after they have lost their economic rationale and he suggests that the essence of capitalism lies in the inevitable tendency of that system to depart from equilibrium the article emphasizes the continuing importance of economic history for economics copyright 2011 the author 2011 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

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

the name your own price channel in the travel industry an analytical exploration name your own price nyop retailers such as priceline offer an alternative distribution channel for service providers in the travel industry such as airlines hotels and car rental companies our research employs an analytical model to identify and understand key trade offs driving the decision by a service provider to employ an nyop channel assuming that such a channel is available this decision requires the existence of forces that counteract the adverse consequences of cannibalization of sales through traditional posted price channels our analysis provides some insight into these forces contracting with the nyop retailer facilitates market segmentation and price discrimination and allows for disposal of excess capacity after meeting business travel demand however the cost of this flexibility is that the service provider can no longer credibly precommit to maintaining high prices when there is unsold capacity also when contracting with an independent retailer the service provider is unable to extract the entire revenue generated from nyop consumers a key insight from our model is that the rationale for contracting with an nyop retailer is driven by the uncertainty in business travel demand not the expectation of excess capacity indeed all else equal the larger the capacity the less likely it is that contracting with an nyop retailer is the right decision on the part of the service provider

if the worst comes to the worst dictator giving when recipient s endowments are risky abstract donors may often not be sure whether a recipient really needs their help does this uncertainty deter generosity we experimentally investigate a situation in which donors do not know the financial endowment of the recipient for certain but still have some information on the distribution the endowments are drawn from in the experiment we find that uncertainty does not deter generosity in fact if we filter out selfish dictators under most specifications of uncertainty dictators give more compared with the donation dictators make to a recipient they know to have the expected value of the endowment with certainty they are particularly concerned about the possibility of a recipient leaving the lab with no payoff from the game

social motives vs social influence an experiment on interdependent time preferences we report experimental evidence on the effects of social preferences on intertemporal decisions to this aim we design an intertemporal dictator game to test whether dictators modify their discounting behavior when their own decision is imposed on their matched recipients we run four different treatments to identify the effect of payoffs externalities from those related to information and beliefs our descriptive statistics show that heterogeneous social time preferences and information about others time preferences are significant determinants of choices dictators display a marked propensity to account for the intertemporal preferences of recipients both in the presence of externalities social motives and or when they know about the decisions of their matched partners social influence we also perform a structural estimation exercise to control for heterogeneity in risk attitudes as for individual behavior our estimates confirm previous studies in that high risk aversion is associated with low discounting as for social behavior we find that social motives outweigh social influence especially when we restrict our sample to pairs of dictators and recipients who satisfy minimal consistency conditions

on the optimal pricing policy of a monopolist the paper presents a simple explanation of price dispersion by a monopolist assuming only that consumers arrive in a random order and are served on a first come first served basis a firm can sometimes increase its profits by charging two different prices for the same good and rationing sales at the lower price however it is never necessary to charge more than two prices and a single price is sufficient as long as either the marginal revenue curve is everywhere downward sloping or the marginal cost of production is constant

value of time speeding behavior and gasoline prices abstract value of time vot is a key parameter in economics and policy this paper presents an alternative method to estimate vot by analyzing an hourly dataset on drivers speeding behavior as a function of the gasoline price our identification strategy is novel as it is based on the intensive margin in comparison previous studies reveal vot on the extensive margin but choice alternatives have multiple attributes thereby potentially confounding estimates consistent with the range of the prior literature we find a vot of about 50 of the wage rate and analyze sources of bias from accidents and traffic tickets these bias functions suggest that previous stated preference vot estimates are likely downward whereas previous revealed preference estimates are likely upward biased

service escape profiting from customer cancellations this paper explores the benefits of letting customers escape from prepurchased service contracts by offering refunds for cancellations we show that such a policy creates opportunities for multiple selling in a capacity constrained service i e collecting cancellation fees from advance buyers who cancel and then reselling the freed slots the better the alternative that motivates a cancellation the more profitable is a refund for cancellations policy compared with a no refund policy that locks in customers in contrast to previous research on money back guarantees for durable goods we show that offering refunds for service cancellations can be profitable 1 without charging a higher price compared with a no refund policy and 2 even when advance buyers would be willing to abandon the service for no refund also service providers should decrease rather than increase the customer hassle cost of cancellations our research also suggests a new profit advantage of advance selling i e capturing some of the consumer added surplus created when customers find new alternatives and are therefore willing to pay a fee to terminate the prepurchased contract finally yield management research typically assumes exogenous no shows by advance buyers we suggest that offering refunds for cancellation reduces the need to reserve capacity for high paying customers and improves capacity utilization

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

measuring attitudes towards inequality individuals attitudes to inequality aversion are measured using survey data based on the leaky bucket experiment for several groups of students in australia and israel three forms of social welfare function are estimated it is found that measures of inequality aversion can be obtained with some precision and that these estimates are substantially lower than the values typically used by those measuring inequality and examining optimal tax structures furthermore a welfare function based on the gini inequality measure is generally found to give a better fit than forms based on constant relative or constant absolute inequality aversion jel classification c91 d63

price discrimination in free entry markets using a spatial model of monopolistic competition we investigate price discrimination in free entry zero profit markets we show that when brands are heterogeneous competition does not prevent discrimination the power to earn economic profits is not necessary for a firm to maintain discriminatory prices our model treats formally the fact that consumers difer not only in the utility they derive from a good but also in how strongly they prefer one brand over all others in markets where firms are very competitive sorting consumers on the strength on brand preference produces larger price differentials between groups than sorting on the basis of consumers reservation prices for the good when firms sort customers on the basis of strength of brand preference however we find that the output and welfare effects are generally less favorable than when sorting is more closely related to consumers reservation prices

risk versus social preferences under the veil of ignorance abstract this paper reports experimental evidence from dictator game experiments in which subjects choose repeatedly one out of four options involving a pair of monetary prizes one for them one for another anonymously matched participant in some sessions there is no uncertainty about the player position i e the identity of the best paid agent constant across all options in other sessions subjects choose under the veil of ignorance not knowing in advance to which player position they will be eventually assigned but only that either possibility is equally likely finally we also collect evidence from additional sessions in which the same options correspond to binary lotteries in which subjects may win the high or the low prize with equal probability but their decisions do not affect other participants we frame subjects decisions within the realm of a simple mean variance utility maximization problem in which the parameter associated to the variance is interpreted depending on the treatment as a measure of pure risk aversion pure inequality aversion or some combination of the two our estimates suggest that we can simply rely on risk aversion to explain subjects behavior under the veil of ignorance

dynamic pricing behavior in perishable goods markets evidence from secondary markets for major league baseball tickets sellers of perishable goods increasingly use dynamic pricing strategies as technology makes it easier to change prices and track inventory this paper tests how accurately theoretical models of dynamic pricing describe sellers behavior in secondary markets for event tickets a classic example of a perishable good it shows that the simplest dynamic pricing models describe very accurately both the pricing problem faced by sellers and how they behave explaining why sellers cut prices dramatically by 40 percent or more as an event approaches the estimates also imply that dynamic pricing is valuable raising the average seller s expected payoff by around 16 percent

the evolution of u s airline competition studies by academic economists were a significant force in the movement towards deregulation of the domestic airline industry in the early 1970s levine 1965 jordan 1970 keeler 1972 douglas and miller 1974 during the critical 1977 78 period in which deregulation was imposed first de facto by the civil aeronautics board cab and then de jure by congress the chairman and vice chairman of the cab were economists for the 14 years since deregulation economists have continued intensive study of the industry in part because of the unusual availability of reliable firm and transaction level data and in part because of the rare opportunity to observe an industry as it evolves from strict economic regulation to fairly unimpeded competition and strategic behavior the simplest prediction of economists about airline deregulation and one of the few on which nearly all economists agreed was that deregulation would improve consumer welfare in comparison to continued price and entry regulation fourteen years later nearly all economists still agree on this though the degree of enthusiasm for the deregulation outcome varies considerably there was substantial disagreement among economists about the market structure that would result because studies of scale economies in the airline industry had concluded that none existed beyond the scale of the smaller major airlines of the 1970s caves 1962 eads et al 1969 many economists argued that deregulation would result in more than the 11 major airlines that existed at the time of deregulation others predicted that only a few or possibly only one airline would survive at a large scale two noted university of chicago economists sam peltzman and lester telser made a bet in 1979 on whether

customer return policies for experience goods this paper studies the economic rationale for customer return policies by focusing on the experience goods aspect of many products return policies allow consumers to defer their purchasing decisions until after they gain some experience with goods in so doing they insure consumers against ex post loss which allows a monopoly seller to charge more than otherwise it is shown that the seller adopts the return policy when consumers are highly risk averse or retail costs are high consumers are strictly better off under the return policy but there is too little adoption of the policy in equilibrium copyright 1996 by blackwell publishing ltd

third degree price discrimination in the presence of congestion externality this paper analyzes third degree price discrimination of a monopoly airline in the presence of congestion externality when all markets are served the model features the business passenger and leisure passenger markets where business passengers exhibit a higher time valuation and a less price elastic demand than leisure passengers our main result is the identification of the time valuation effect of price discrimination which can work in the opposite direction as the well known output effect on welfare this time valuation effect clearly explains why discriminating prices can improve welfare even when this is associated with a reduction in aggregate output

revenue management by sequential screening abstract using a mechanism design approach we consider a firm s optimal pricing policy when consumers are heterogeneous and learn their valuations at different times we show that by offering a menu of advance purchase contracts that differ in when and for how much the product can be returned a firm can more easily price discriminate between privately informed consumers in particular we show that screening on when the return option can be exercised increases firm profits relative to screening on the size of the refund alone only if the expected gains from trade are higher for consumers who learn later we show that in some settings mean preserving spread the firm can achieve the complete information profits and analyze the optimal contract in other settings first order stochastic dominance in which the first best allocation is not always feasible

price discrimination through refund contracts in airlines this paper shows how an airline monopoly uses refundable and non refundable tickets to screen consumers who are uncertain about their travel our theoretical model predicts that the difference between these two fares diminishes as individual demand uncertainty is resolved using an original data set from u s airline markets we find strong evidence supporting our model price discrimination opportunities through refund contracts decline as the departure date nears and individuals learn about their demand

dynamic pricing through discounts for optimizing multiple class demand fulfillment in a multiple customer class model of demand fulfillment for a single item we consider the use of dynamic price discounts to encourage backlogging of demand for customer classes denied immediate service customers are assumed to arrive over several stages in a period and customer classes are distinguished by their contractual price and sensitivity to discounts through dynamic programming we determine the optimal discounts to offer assuming a linear model for the sensitivity of customers to such inducements we show that customers are served in class order and allocation of inventory to demand is determined by considering the current number of customers backlogged as well as the current inventory position through comparison to a naive supplier allocating inventory first come first served with no discounting we show that profits are primarily influenced by the allocation of capacity and the use of price discounts primarily benefits the second class customers overall fill rate heuristics for implementation of the solution in real time settings are given

monopoly with incomplete information recent theoretical research on principal agent relationships has emphasized incentive problems that arise when the parties involved are constrained by either asymmetric information or their inability to monitor each other s actions here we concentrate on the former constraint and consider the case of a single principal the monopolist the main contribution is to show that under a separability assumption strong conclusions can be drawn about the nature of optimal incentive schemes although the primary focus is on optimal quantity discounts in a monopolized market the results also shed light on related topics such as optimal income taxation and commodity bundling

a theory of clearance sales clearance sales are widely used by firms as an intertemporal selling policy in particular in markets where firms face demand uncertainty and need to choose capacity in advance clearance sales consist in charging a high price initially but then lowering the price in the sales period high valuation consumers purchase the good at the high initial price so as to avoid rationing at the low price while low valuation consumers wait for the price to drop we develop a simple model of intertemporal monopoly pricing under demand uncertainty and show that clearance sales may be the optimal intertemporal selling policy

airline pricing behavior under limited inter modal competition this paper empirically analyzes airline pricing for short haul flights in contexts with no credible threat of inter modal competition to this end we explore the southern italian market since it is less accessible by other transport modes and thus fares are the direct outcome of air related competition we show in fact that market power matters depending on the level of intra modal competition and that airlines apply differentiated mark ups besides consistent with the implementation of inter temporal price discrimination ipd we find a non monotonic inter temporal profile of fares with a turning point included in the interval of the 43rd to 45th days before departure finally we provide evidence that in more competitive markets airlines are more likely to engage in ipd jel l11 l13 l93

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

durable services monopolists do better than durable goods monopolists the authors consider a monopolist who can commit to a price path when selling a good for which individual consumers demand at most one unit only if the monopolist can also commit to destroying unpurchased stock and the timing of stock release can she earn more than a static monopolist this additional commitment power has empirical revelance for a wide range of goods that the authors term durable services the inability to store output facilitates price discrimination by a durable services monopolist by permitting the credible threat of rationing the authors detail sufficient conditions for a durable services monopolist to produce more than a static or durable goods monopolist produces

competition and price dispersion in the airline markets we use two ticket level data sets on one way domestic flights for the us airlines to examine the potentially nonlinear relationship between price dispersion and three forms of competition inter firm inter flight and frequency competitions the linear relationship is rejected at any conventional significance levels in particular there is an s shaped relationship between market concentration and price dispersion this can be a reason for the mixed results in the literature roughly speaking the inter flight and frequency competitions have opposite effects on price dispersion finally in general the size of aircraft has a positive effect on price however for very large aircraft the relationship becomes negative

are people inequality averse or just risk averse individuals preferences for risk and inequality are measured through choices between imagined societies and lotteries the median relative risk aversion which is often seen to reflect social inequality aversion is between 2 and 3 most people are also found to be individually inequality averse reflecting a willingness to pay for living in a more equal society left wing voters and women are both more risk and inequality averse than others the model allows for non monotonic swfs implying that welfare may decrease with an individual s income at high income levels which is illustrated in simulations based on the empirical results

an interpretive history of challenges to neoclassical microeconomics and how they have fared contemporary microeconomics has witnessed a resurgence of behavioral institutional and evolutionary critiques of the neoclassical mainstream that came to dominate the field during the 1980s today s critiques and proposals for reform have a long tradition in economics while synthesizing the intellectual history of these challenges this article explores the reasons why such critical strands of microeconomics fared poorly in the past and in contrast what factors may account for their partial acceptance into the mainstream in recent times

blade runner economics will innovation lead the economic recovery according to schumpeterian theories economic expansions are associated with the introduction of successful new products processes and services while depressions are linked to stagnant periods with few innovations can the economic crisis set in motion in 2008 be explained by the inability to innovate and upgrade production and conversely will an economic recovery require a new stream of innovations drawing on the debate which emerged after the 1970s economic crisis this discussion paper tries to assess whether it is likely that the next long term expansion will be linked to a new stream of innovations while most evidence suggests that icts continue to provide the back bone of economic activities there is the prospect that biotechnology will eventually start to fulfil the promise envisaged over 30 years ago in the film blade runner

service cancellation and competitive refund policy although previous research demonstrates the profitability of partial refund policies in a monopoly setting there is a certain lack of ubiquity in practice about these refunds in competitive service markets this raises the question of how a partial refund policy may work and whether it is even sustainable in a competitive environment this study investigates how competition may influence the profitability and the equilibrium choice of refund policies it is shown that partial refunds may endogenously change the nature of strategic interaction between service providers from local monopolies into a competition regime which moderates the gains from exploiting the efficiency enhancing effect of partial refunds a whole range of pure strategy equilibria can be obtained as a result of the interplay between the efficiency improving and the competition intensifying effects when the capacity is small large such that the efficiency improving the competition intensifying effect is dominant both firms in equilibrium follow identical partial zero refund policies moreover interestingly the symmetric firms may end up in an asymmetric equilibrium in which one firm follows a partial refund policy and the other adopts a zero refund policy

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

advance selling effects of interdependent consumer valuations and seller s capacity we examine the impact of consumer valuation interdependence and capacity on a firm s optimal selling strategies we consider a seller who can offer a single product to consumers twice in advance and in spot consumers choose whether and when to buy but if they buy in advance they are uncertain about their own valuations whether they buy in advance or in spot consumers valuations are realized in the spot period and they may range from fully independent to perfectly correlated creating markets with different characteristics of aggregate demand for the seller facing these consumers the seller chooses a portion of the total capacity to offer in advance and prices in both periods we describe how the optimal strategy and benefits of advance selling depend on the interdependence of consumer valuation as well as capacity level and other market parameters we find that a change in valuation interdependence can lead to dramatically different policies for the seller for example when individual valuations are highly diverse and the consumer population is large the seller must offer a discount during advance selling but may limit the advance sales on the other hand when valuations are highly correlated the seller can charge a premium price during advance selling for the same valuation interdependence the qualitative nature of the optimal strategy changes with available capacity this paper was accepted by martin lariviere operations management

efficient and competitive rationing abstract the contracts that interest us here are called priority service contracts the salient feature of such contracts is that they specify each customer s priority in obtaining service that is they specify the tank order in which a customer is served out of the available supply until all customers are served or supply is exhausted such contracts essentially establish queues for customers in section 1 the author provides some background about priority service section 2 formulates a basic model and offer several illustrations also describes two main examples that motivate the theoretical development section 3 derives some key results that show how the prices of priority service contracts are designed to induce customers to self select efficient service orders in section 4 the author discusses various ways that state enterprises can organize markets that implement priority service efficiently in section 5 we study the operation of competitive markets for priority service section 6 concludes with some summary remarks two themes are emphasized one is that a state enterprise can promote substantial efficiency gains by substituting priority service for absent spot markets the other is that oligopolistic firms may have insufficient incentives to offer efficient product diversity consequently allocative efficiency depends on entry of numerous firms even so dispersal of supplies among many firms can prevent productive efficiency when there are advantages from pooling supplies

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

optimal pricing with speculators and strategic consumers this paper studies a monopolist firm selling a fixed capacity the firm sets a price before demand uncertainty is resolved speculators may enter the market purely with the intention of resale which can be profitable if demand turns out to be high consumers may strategically choose when to purchase and they may also choose to purchase from the firm or from the speculators we characterize equilibrium prices and profits and analyze the long run capacity decisions of the firm there are three major findings first the presence of speculators increases the firm s expected profits even though the resale market competes with the firm second by facilitating resale the firm can mimic dynamic pricing outcomes and enjoy the associated benefits while charging a fixed price third speculative behavior may generate incentives for the seller to artificially restrict supply and thus may lead to lower capacity investments we also explore several model extensions that highlight the robustness of our results

systematic peak load pricing congestion premia and demand diverting empirical evidence abstract this paper finds empirical support to systematic peak load pricing in airlines higher fares in ex ante known congested periods it estimates a congestion premia and supports the main empirical prediction in gale and holmes gale i holmes t 1993 advance purchase discounts and monopoly allocation of capacity american economic review 83 135 146 less discount seats on peak flights

price discrimination on booking time abstract even if consumers are forward looking and free to choose when to purchase a firm can price discriminate on booking time if consumers learn their valuations at different times and consumers who learn later have higher valuations the model is related to our work on optimal screening with returns contracts akan ata and dana 1 but here we consider a simpler binary valuation distribution and consider more realistic consumer learning assumptions the main contribution is to show that the profitability of screening on time is robust to relaxing the assumption that consumers learn instantaneously in addition to analyzing a bad news model in which information arrives gradually we characterize a general bound on consumer optimism that guarantees that the instantaneous learning results are robust

social preferences and strategic uncertainty an experiment on markets and contracts this paper reports experimental evidence on a stylized labor market the experiment is designed as a sequence of three phases in the first two phases p1 and p2 agents face simple games which we use to estimate subjects social and reciprocity concerns together with their beliefs in the last phase p3 four principals who face four teams of two agents compete by offering agents a contract from a fixed menu then each agent selects one of the available contracts i e he chooses to work for a principal production is determined by the outcome of a simple effort game induced by the chosen contract we find that heterogeneous social preferences are significant determinants of choices in all phases of the experiment since the available contracts display a trade off between fairness and strategic uncertainty we observe that the latter is a much stronger determinant of choices for both principals and agents finally we also see that social preferences explain to a large extent matching between principals and agents since agents display a marked propensity to work for principals with similar social preferences

when is price discrimination profitable we consider a general model of monopoly price discrimination and characterize the conditions under which price discrimination is and is not profitable we show that an important condition for profitable price discrimination is that the percentage change in surplus i e consumers total willingness to pay less the firm s costs associated with a product upgrade is increasing in consumers willingness to pay we refer to this as an increasing percentage differences condition and relate it to many known results in the marketing economics and operations management literatures

shortages segmentation and self selection this paper considers the rationality and implications of using shortages as a self selection device shortages lead to uncertain access and enable sellers to offer ensured access either to the good or to a preferred variety of the good at a higher price or as part of a bundle it is shown that such activities allow firms to span nonconcavities in their revenue function firms respond to changes in demand and costs through changes in quantity and or the premium for ensured access but not through changes in the base price

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

estimating dynamic demand for airlines this paper uses an original panel dataset with posted prices and sales to estimate a dynamic demand we find that consumers become more price sensitive as time to departure nears which is consistent with having lower valuations this result provides empirical support to a key theoretical implication in deneckere and peck 2012 high valuation consumers purchase earlier we also find that the number of active consumers increases closer to departure

the rigidity of prices this paper uses evidence on individual transaction prices to analyze price behavior the evidence shows that for many transactions pricesremain rigid for periods exceeding one year the rigidity of price ispositively correlated with industry concentration for several productsthe correlation of price changes across buyers is low the paper alsoinvestigates the relationship between price rigidity price change andthe length of time a buyer and seller have been doing business together the author interprets the evidence as emphasizing the importance of nonprice rationing and the inadequacy of models in whichprice movements alone clear markets copyright 1986 by american economic association

monopoly price dispersion under demand uncertainty when a monopolist sets its price before its demand is known then it may set more than one price and limit the availability of its output at lower prices this article adds demand uncertainty and price rigidities to the standard model of monopoly pricing when there are two states of demand and the ex post monopoly price is greater when demand is high then the monopolist s optimal ex ante pricing strategy is to set two prices and limit purchases at the lower price

nonlinear pricing strategies and competitive conditions in the airline industry i introduction many industries use nonlinear pricing based on product attributes one industry where this practice is long recognized is domestic airlines while price dispersion in the industry has been widely studied data limitations have prevented analysis investigating the impact of competitive conditions on price dispersion linked to nonlinear pricing as opposed to variation in costs this paper uses a novel data set that allows us to investigate how nonlinear pricing strategies vary with market structure we construct a ticket menu using standard categories of tickets including first class tickets business class tickets fully refundable tickets nonrefundable tickets and nonrefundable restricted tickets these categories exhibit substantially different prices and are available across all types of routes we investigate both how market concentration and the competitive pressures generated by southwest and other low cost carriers impact the relative fares within the ticket menu using traditional measures of concentration including both herfindahl hirschman index hhi and discrete measures used in other studies of airlines competitive duopoly and monopoly we observe only a modest impact of concentration on relative fares the discrete measures appear to be more informative indicating that concentration primarily reduces the relative fares for high end first class tickets on monopoly routes we identify a puzzle regarding the pricing of high end fares under monopoly the evidence does not support a more general relationship between concentration and other fares we find considerably stronger evidence regarding the impact of southwest on the fare structure while previous studies show that southwest s presence reduces mean fares our results provide a much richer picture the results show that southwest s presence reduces low end fares but actual and potential competition from southwest also generally leads to a substantial compression of the entire fare structure competition from other low cost carriers also affects the fare structure but does not lead to a compression of fares our analysis ties into several literatures our work is closely related to the theoretical work on nonlinear pricing and imperfect competition see e g rochet and stole 2002 stole 1995 1 generically however there is no natural empirical implementation of these models for testing more specifically in these models consumers differ in two dimensions brand loyalty and their marginal preference for quality the results of these papers show that the relationship between competition and high versus low prices turns on the correlation between consumers preferences for quality and their brand loyalty unfortunately these models generally predict monotonicity so that prices exhibit either a wider or narrower spread related to competition busse and rysman 2002 our results in contrast show that higher prices are reduced on highly concentrated routes but that intermediate prices are at most modestly affected the results for actual and potential competition from southwest generally support the predictions of rochet and stole 2002 that increased competition will lead to fare compression our study is also related to the empirical work on competition and price dispersion in airline markets there is an extensive body of work regarding the relationship between market concentration and airline price dispersion the empirical evidence on this matter is mixed in a seminal paper borenstein and rose 1994 examine concentration and price dispersion using cross sectional variation in market concentration and dispersion to identify the relationship between the two they show that airlines offer highly dispersed prices the expected absolute difference in fares between two randomly chosen passengers on the same airline and route is 36 of the average price the authors also find that price dispersion decreases with market concentration

evidence of directional price discrimination in the u s airline industry abstract this paper explores possible determinants that may affect an airline s decision to charge passengers different roundtrip fares depending on trip origin a case of directional price discrimination such fare differences cannot be the result of differences in cost as the cost of flying a roundtrip passenger does not significantly differ depending on direction it is argued that directional fare differences result from airlines recognizing that passenger price elasticities differ between route endpoints a price discriminating airline will then charge a higher roundtrip fare at the endpoint where the passenger price elasticity of demand is comparatively lower evidence is found suggesting that airlines do use differences in income to price discriminate when setting roundtrip fares fares are found to be 0 18 0 43 higher on average for each 1000 difference in average per capita income between origin and destination metro areas this finding is sensible assuming that higher incomes reduce the price elasticity of demand for air travel with richer passengers being less sensitive to the cost of travel

revenue management without commitment dynamic pricing and periodic flash sales a seller has a fixed number of goods to sell by a deadline at each time he posts a regular price and decides whether to hold a flash sale over time buyers privately enter the market and strategically time their purchases if a buyer does not purchase when she arrives she can pay an attention cost to recheck the regular price afterwards or she can wait for future flash sales where she may obtain a good at a discounted price in the unique markov perfect equilibrium the seller sporadically holds flash sales to lower the stock of goods a flash sale increases the willingness to pay of future buyers but decreases the willingness to pay of buyers who arrive early in the game when it is very likely that a buyer will obtain a good in a flash sale the seller holds a big initial flash sale for all but one unit of the good

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

when choosing makes a good thing better temporal variations in the valuation of hedonic consumption abstract this research investigates how the valuation of delayed consumption of hedonic products such as concerts and chocolate varies with the passage of time between choice and consumption the authors find that when consumers make their own choices they exhibit increases in evaluations of delayed consumption but only if the interval between choice and consumption is relatively short the effect attenuates over longer periods resulting in an inverted u shaped relationship between evaluations and time in contrast when somebody else chooses the same option for the consumer evaluations decrease with the passage of time these effects depend on the extent of intrinsic motivation toward the object of consumption and occur only for consummatory consumption that is of inherent interest moreover anticipatory increases in evaluations before consumption have ironic negative effects on postconsumption evaluations the authors discuss implications and directions for further research

pricing non storable perishable goods by using a purchase restriction with an application to airline fare pricing abstract the aim of this paper is to address the pricing problem of non storable perishable goods or services such as airline seats and hotel rooms by incorporating the use of purchase restrictions such as the advance booking requirement that is commonly used by airlines and hotels we will show that there exists an optimal pricing policy of at most three prices which can be obtained by solving a series of linear programming problems we will demonstrate that when applied to airline fare pricing the monotonicity condition of the model is equivalent to the requirement that business travelers are less price elastic than leisure travelers we will further illustrate the applicability of the model through a numerical example in the context of airline fare pricing by incorporating the impact of various fences

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