Econometrica

Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: Mar, 2022, Volume 90, Issue 2

The Welfare Effects of Dynamic Pricing: Evidence from Airline Markets

https://doi.org/10.3982/ECTA16180
p. 831-858

Kevin R. Williams

Airfares fluctuate due to demand shocks and intertemporal variation in willingness to pay. I estimate a model of dynamic airline pricing accounting for both sources of price adjustments using flight‐level data. I use the model estimates to evaluate the welfare effects of dynamic airline pricing. Relative to uniform pricing, dynamic pricing benefits early‐arriving, leisure consumers at the expense of late‐arriving, business travelers. Although dynamic pricing ensures seat availability for business travelers, these consumers are then charged higher prices. When aggregated over markets, welfare is higher under dynamic pricing than under uniform pricing. The direction of the welfare effect at the market level depends on whether dynamic price adjustments are mainly driven by demand shocks or by changes in the overall demand elasticity.


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Supplemental Material

Supplement to "The Welfare Effects of Dynamic Pricing: Evidence from Airline Markets"

Williams, Kevin R.

This zip file contains the replication files for the manuscript.

Supplement to "The Welfare Effects of Dynamic Pricing: Evidence from Airline Markets"

Williams, Kevin R.

This online appendix contains material not found within the manuscript.