Document Type
Discussion Paper
Publication Date
4-2023
CFDP Number
2341R1
CFDP Revision Date
April 2023
CFDP Pages
77
Journal of Economic Literature (JEL) Code(s)
C70, C73, D21, D22, D43, D60, L13, L93
Abstract
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%).
Recommended Citation
Betancourt, Jose M.; Hortaçsu, Ali; Öry (Oery), Aniko; and Williams, Kevin R., "Dynamic Price Competition: Theory and Evidence from Airline Markets" (2023). Cowles Foundation Discussion Papers. 2720.
https://elischolar.library.yale.edu/cowles-discussion-paper-series/2720