TY  - JOUR
AU  - Puller,Steven L.
AU  - Sengupta,Anirban
AU  - Wiggins,Steven N.
TI  - Testing Theories of Scarcity Pricing in the Airline Industry
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15555
PY  - 2009
Y2  - December 2009
UR  - http://www.nber.org/papers/w15555
L1  - http://www.nber.org/papers/w15555.pdf
N1  - Author contact info:
Steven L. Puller
Department of Economics
Texas A&M University
3046 Allen
College Station, TX 77843-4228
Tel: 979/845-7349
Fax: 979/847-8757
E-Mail: puller@econmail.tamu.edu

Anirban Sengupta
Analysis Group
San Francisco, CA
E-Mail: asengupta@analysisgroup.com

Steven Wiggins
Texas A&M University
E-Mail: swiggins@tamu.edu
AB  - This paper investigates why passengers pay substantially different fares for travel on the same airline between the same two airports.  We investigate questions that are fundamentally different from those in the existing literature on airline price dispersion.  We use a unique new dataset to test between two broad classes of theories regarding airline pricing. The first group of theories, as advanced by Dana (1999b) and Gale and Holmes (1993), postulates that airlines practice scarcity based pricing and predicts that variation in ticket prices is driven by differences between high demand and low demand periods.  The second group of theories is that airlines practice price discrimination by using ticketing restrictions to segment customers by willingness to pay.  We use a unique dataset, a census of ticket transactions from one of the major computer reservation systems, to study the relationships between fares, ticket characteristics, and flight load factors.  The central advantage of our dataset is that it contains variables not previously available that permit a test of these theories.  We find only mixed support for the scarcity pricing theories.  Flights during high demand periods have slightly higher fares but exhibit no more fare dispersion than flights where demand is low.  Moreover, the fraction of discounted advance purchase seats is only slightly higher on off-peak flights.  However, ticket characteristics that are associated with second-degree price discrimination drive much of the variation in ticket pricing.
ER  -