SEMINAR CANCELLED

Résumé

Airfares are determined by both intertemporal price discrimination and dynamic adjustment to stochastic demand given limited capacity. In this paper I estimate a model of dynamic airline pricing taking both forces into account. I use an original data set of daily fares and seat availabilities at the flight level. With model estimates, I disentangle key interactions between the arrival pattern of consumer types and remaining capacity under stochastic demand. I find dynamic adjustment to stochastic demand is particularly important as a means to secure seats for high-valuing consumers who arrive close to the departure date. It leads to substantial revenue gains compared to pricing policies which depend on date of purchase but not remaining capacity. In aggregate consumers benefit, despite facing higher fares on average, as a result of more efficient capacity allocation. Finally, I show that failing to account for stochastic demand leads to a systematic bias in estimating demand elasticities.