Price Dispersion and Consumer Upgrade: Theory and Empirical Evidence from Airline Industry

2017 ◽  
Author(s):  
Yao Cui ◽  
A. Yesim Orhun
Keyword(s):  
Empirical Evidence ◽  
Airline Industry ◽  
Price Dispersion

How Price Dispersion Changes When Upgrades Are Introduced: Theory and Empirical Evidence from the Airline Industry

2019 ◽  
Vol 65 (8) ◽  
pp. 3835-3852 ◽  
Author(s):  
Yao Cui ◽  
A. Yeşim Orhun ◽  
Izak Duenyas
Keyword(s):  
Operations Management ◽  
Airline Industry ◽  
Price Dispersion ◽  
Consumer Welfare ◽  
Data Set ◽  
Differentiation Strategy ◽  
Valuation Effect ◽  
Price Distribution ◽  
The One ◽  
The Impact

This paper studies the effect of introducing a new vertical differentiation strategy, paying for an upgrade to a premium product after purchasing the base product, on the price dispersion of the base product arising from existing price discrimination strategies. In particular, we examine how a major U.S. airline’s price dispersion in the coach cabin changes after introducing the option to upgrade to a new type of premium economy seating within the coach cabin. We first provide a theoretical analysis that highlights two competing pressures that the new premium economy seating upgrades created on coach class prices. On the one hand, the airline benefits from lowering its prices because by allowing more customers to purchase in the first place, it increases the probability of selling upgrades (admission effect). On the other hand, for some customers, the value of flying with the airline increases because of the upgrade availability, therefore the airline may find it optimal to increase its prices (valuation effect). In the second part of the paper, we conduct an empirical investigation of the impact of upgrade introduction on coach class prices, based on a proprietary transaction-level data set from a major U.S. airline company. The empirical analysis tests the main predictions of our theoretical model and examines further nuances. The results show that the introduction of the premium economy seating upgrades is associated with an increase in the price dispersion and revenues in the coach class, the admission effect is stronger than the valuation effect on the low end of the price distribution, and the opposite is true on the high end of the price distribution. Finally, we discuss implications of our results for firm revenues and consumer welfare. This paper was accepted by Serguei Netessine, operations management.

scholarly journals The Effect of the Livestock Mandatory Reporting Act on Market Transparency and Grid Price Dispersion

2010 ◽  
Vol 39 (3) ◽  
pp. 457-467 ◽  
Author(s):  
Scott W. Fausti ◽  
Bashir A. Qasmi ◽  
Jing Li ◽  
Mathew A. Diersen
Keyword(s):  
Empirical Evidence ◽  
Representative Sample ◽  
Reporting System ◽  
Price Dispersion ◽  
Mandatory Reporting ◽  
Market Transparency ◽  
Empirical Results ◽  
Significant Change

The Livestock Mandatory Reporting Act (MPR) of 1999 was implemented in April 2001. Empirical evidence indicates a significant change in intra-week price dispersion associated with publicly reported fed cattle grid premiums and discounts occurring after MPR implementation.The research objective is to evaluate the effect of increased market transparency resulting from implementation of MPR, on grid intra-week premium and discount dispersion levels. Empirical results suggest that increased transparency is compatible with intra-week dispersion levels increasing. Increased dispersion suggests that during the pre-MPR period weekly premium and discount data may have been drawn from a non-representative sample. From the empirical evidence, it is concluded that reform of the livestock price-reporting system appears to have been necessary in the case of publically reported grid premiums and discounts.

Does Competition Reduce Price Dispersion? New Evidence from the Airline Industry

2009 ◽  
Vol 117 (1) ◽  
pp. 1-37 ◽  
Author(s):  
Kristopher S. Gerardi ◽  
Adam Hale Shapiro
Keyword(s):  
Airline Industry ◽  
Price Dispersion ◽  
New Evidence

Price Dispersion Over the Business Cycle: Evidence from the Airline Industry

2012 ◽  
Vol 60 (3) ◽  
pp. 347-373 ◽  
Author(s):  
Marco Cornia ◽  
Kristopher S. Gerardi ◽  
Adam Hale Shapiro
Keyword(s):  
Business Cycle ◽  
Airline Industry ◽  
Price Dispersion ◽  
The Business Cycle

scholarly journals Competition and Price Dispersion in the U.S. Airline Industry

1994 ◽  
Vol 102 (4) ◽  
pp. 653-683 ◽  
Author(s):  
Severin Borenstein ◽  
Nancy L. Rose
Keyword(s):  
Airline Industry ◽  
Price Dispersion ◽  
The U.S
Sign in / Sign up

Export Citation Format

Share Document