The dynamics of transport fares

Résumé

In transport industries, constraints on the number of available seats, booking deadlines, and heterogeneous potential buyers allow for intertemporal price discrimination, as shown by the widely spread practice of revenue management. This practice obviously increases the company's profit since it offers more leeway in its maximization program. However, the impact of revenue management on social welfareremains unclear. We develop a model of revenue management allowing for heterogeneous products and consumers characteristics and we simulate booking processes. We find that compared to an optimal fixed price strategy, revenue management increases both profits and consumer surplus. We are also able to identify the redistribution properties of revenue management between heterogeneous consumers: high-income consumers subsidize low-income ones when demand is low, but both types benefit from the practice when demand is high. In the second part of the paper, we study how competition, ex-ante strategic decisions, access tari ffs, and regulation affect revenue management and its impact on social welfare.