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Dynamic Price Competition: Theory and Evidence from Airline Markets / Jose M. Betancourt, Ali Hortaçsu, Aniko Oery, Kevin R. Williams.
- Format:
- Book
- Author/Creator:
- Betancourt, Jose M.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w30347.
- NBER working paper series no. w30347
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2022.
- Summary:
- We introduce a model of dynamic pricing in perishable goods markets with competition and provide conditions for equilibrium uniqueness. Pricing dynamics are rich because both own and competitor scarcity affect future profits. We identify new competitive forces that can lead to misallocation due to selling units too quickly: the Bertrand scarcity trap. We empirically estimate our model using daily prices and bookings for competing U.S. airlines. We compare competitive equilibrium outcomes to those where firms use pricing heuristics based on observed internal pricing rules at a large airline. We find that pricing heuristics increase revenues (4-5%) and consumer surplus (3%).
- Notes:
- Print version record
- August 2022.
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