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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of Economic Behavior & Organization, Volume 84, Issue 3, December 2012, Pages 801–812
This paper identifies a source of price discrimination utilized by airlines – price discrimination based on the day-of-the-week that a ticket is purchased. Using unique transaction data, we compare tickets on the same airline and route that are purchased on different days of the week, after controlling for the day of week of travel, the ticket restrictions, the demand characteristics of the flights, and the number of days in advance that the ticket is purchased. We find that fares are 5% lower when purchased on the weekend. We conjecture that this is a form of price discrimination. If airlines believe that weekend purchasers are more likely to be price-elastic leisure travelers, then they may offer lower prices on weekends when the mix of purchasing customers makes demand more price elastic. This conjecture is supported by the finding that the weekend purchase effect is distinctly larger on routes with a mixture of both business and leisure customers than on routes that disproportionately serve leisure customers. We illustrate that this pricing practice can have important impacts on airline profits. These results have implications for other industries that have the ability to change prices daily based upon the types of customers who purchase on a specific day.
It is well-known that airlines use a variety of mechanisms to price discriminate between customers with different willingness to pay for travel. The existing theoretical and empirical literature has investigated several of these mechanisms including advance purchase restrictions, non-refundability, minimum stay requirements, and Saturday night stay requirements. Advance purchase restrictions can be used to segment consumers by their value of time (Gale and Holmes, 1993) and may be sold disproportionately to customers with low valuation (Dana, 1998). Tickets with Saturday night stay restrictions and other travel and refundability restrictions have lower fares, suggesting that ticket restrictions are used to price discriminate (Stavins, 2001 and Puller et al., 2009). However, the literature has not studied whether airlines segment customers by the day-of-week of purchase. In principle, this could be a valuable segmenting device. Travelers who purchase on the weekend (but travel any day of the week) may have different price elasticities than those who purchase during the week. Moreover, it would be very feasible to implement “day-of-week-of-purchase” pricing because airlines have the ability to dynamically change prices daily using sophisticated computer reservation systems. Current revenue management systems used by airlines allow revenue management analysts to reassess pricing daily during the booking process. 1 In this paper, we make a simple and straightforward contribution to the literature. We find that airlines charge lower fares for observably similar tickets based on the day-of-week of purchase, and that this phenomenon is consistent with price discrimination. This finding is important in its own right because airlines are increasingly using complex pricing schemes, and revenue management systems are becoming progressively more sophisticated. This analysis provides insights into the mechanisms of airline pricing. Our finding also has implications for a variety of other industries in which sophisticated pricing schemes can be applied. For example, the revenue management systems developed for airlines are being deployed in other hospitality industries including hotels, rental cars, cruise lines, and trains. And more generally, the study of price discrimination by time of purchase could have implications for e-commerce. The dynamic pricing of online retail markets could take advantage of changing prices based on the demand elasticities of consumers likely to be purchasing on any given day or specific times of the day. Although the general topic of intertemporal price discrimination has received considerable attention in the literature, this is the first paper to our knowledge to empirically investigate price discrimination based on day-of-week of purchase that is independent of the actual day of consumption. 2 One obstacle to identifying whether airlines price differently on specific days of the week is obtaining sufficiently detailed data in order to address various selection issues. For example, travelers purchasing on the weekend could pay less because they choose tickets with more restrictions or fly on less popular flights; such selection behavior could lead one to incorrectly conclude that airlines set different fares on weekends. One would need to control for a variety of ticket characteristics to accurately assess whether airlines price differently on weekends. The most common data used in existing airline pricing research – the U.S. Department of Transportation's Airline Origin and Destination Survey (DB1B) – do not include purchase or departure date nor ticket restrictions or load factors; thus, this dataset is not adequate to properly control for other factors that could affect pricing. Likewise, data on posted airfares gathered via web-scraping are not sufficient to address this issue unless the data contain flight times and ticket restrictions.3 We use a unique new dataset of ticket transactions to overcome many of these obstacles. Our data include individual ticket restrictions and information on the load factors of the itinerary's flights. We illustrate the general phenomenon of the weekend pricing effect in Fig. 1. This figure plots the mean fare paid by the day-of-week of purchase for a set of “restricted” tickets that involve travel on a weekday.4 Fares are distinctly lower when the ticket is purchased on Saturday or Sunday. This figure uses only a small subset of the controls that we use in the formal regressions. As we show below, even after controlling for a large set of ticket restrictions and load factors, tickets purchased on weekends are sold at fares that are 5% lower than fares purchased on weekdays. We interpret this finding as differential pricing of weekend purchases. Full-size image (29 K) Fig. 1. Motivating figure for a weekend purchase effect. Figure options We show that this empirical regularity is consistent with price discrimination. Routes with a larger share of business travelers are likely to have a different composition of passengers purchasing on weekends versus weekdays, creating incentives for airlines to lower fares on weekends when the demand is more price elastic. We find that the weekend purchase effect is 7% on routes that are a mix of business and leisure travelers while the effect is only 2% on routes that disproportionately serve leisure travelers. We argue that this is highly suggestive that airlines implement price discrimination by the day-of-week of purchase. In the final section, we show that the pricing strategy could have notable effects on airline profits. Our results differ from the only other paper that investigates a day of purchase effect in airlines. Mantin and Koo (2010) analyze a collection of fares from Farecast.com and find that, for a given route, average price is not affected by purchase day of the week but that price dispersion is higher Friday through Sunday. The differences between our findings and those of Mantin and Koo most likely arise from fundamental differences in the data. Mantin and Koo use posted online fares while we use transacted fares. Our data make it possible to account for factors not controlled for by Mantin and Koo, including ticket restrictions and flight-level load factors.
نتیجه گیری انگلیسی
This paper investigates a robust empirical regularity that was not previously identified – the existence of a weekend purchase effect on airline ticket prices. Although we cannot definitively conclude that the effect reflects price discrimination, the cross-sectional variation in the size of the effect is certainly suggestive of a price discrimination mechanism. Moreover, simple calculations show that the pricing strategy could have notable effects on airline profits. These findings have implications beyond pricing in the airline industry. If the customer composition varies by day-of-week, such a pricing strategy could be utilized in other hospitality industries that use yield management software. Future research could test for day-of-week pricing in other hospitality industries such as hotels, car rentals, trains, and cruises. More generally, future research could test for similar pricing behavior in e-commerce in which prices can be adjusted by day of week (or even time of day) when customer composition is different.