NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Accounting for Price Endogeneity in Airline Itinerary Choice Models: An Application to Continental U.S. Markets

Virginie Lurkin, Laurie A. Garrow, Matthew J. Higgins, Jeffrey P. Newman, Michael Schyns

NBER Working Paper No. 22730
Issued in October 2016
NBER Program(s):   IO

Network planning models, which forecast the profitability of airline schedules, support many critical decisions, including equipment purchase decisions. Network planning models include an itinerary choice model that is used to allocate air total demand in a city pair to different itineraries. Multinomial logit (MNL) models are commonly used in practice and capture how individuals make trade-offs among different itinerary attributes; however, none that we are aware of account for price endogeneity. This study formulates an itinerary choice model that is consistent with those used by industry and corrects for price endogeneity using a control function that uses several types of instrumental variables. We estimate our model using a database of more than 3 million tickets provided by the Airlines Reporting Corporation. Results based on Continental U.S. markets for May 2013 departures show that models that fail to account for price endogeneity overestimate customers’ value of time and result in biased price estimates and incorrect pricing recommendations. The size and comprehensiveness of our database allows us to estimate highly refined departure time of day preference curves that account for distance, direction of travel, number of time zones traversed, departure day of week and itinerary type (outbound, inbound or one-way). These time of day preference curves can be used by airlines, researchers, and government organizations in the evaluation of different policies such as congestion pricing.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w22730

Users who downloaded this paper also downloaded* these:
Kerr, Kerr, Özden, and Parsons w22715 Global Talent Flows
Kahn and Nickelsburg w22830 An Economic Analysis of U.S Airline Fuel Economy Dynamics from 1991 to 2015
Falato and Scharfstein w22689 The Stock Market and Bank Risk-Taking
Haeussler and Higgins w18364 Explaining Preferences for Control Rights in Strategic Alliances: A Property Rights and Capabilities Perspective Approach
Ge, Knittel, MacKenzie, and Zoepf w22776 Racial and Gender Discrimination in Transportation Network Companies
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us