The Welfare Effects of Dynamic Pricing: Evidence from Airline Markets
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The Welfare Effects of Dynamic Pricing: Evidence from Airline Markets
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Re: The Welfare Effects of Dynamic Pricing: Evidence from Airline Markets
#2No post body was provided.
Re: The Welfare Effects of Dynamic Pricing: Evidence from Airline Markets
#3I agree with the paper's conclusions. Dynamic pricing is a good thing. But lets take a counterexample:
Amazon tried this years ago. They changed pricing on the same sku based on who was shopping for it.
The blowback was tremendous. Amazon had to actually back down.
My take is that consumers understand and are willing to put up with dynamic pricing for airplane seats because the algorithm is presumably understood.
I'm willing to accept that the person sitting next to me on an airplane may have paid 1/3 than the price I paid on my ticket. Maybe the person next to me booked earlier, or booked when the airline had a promo going. Sounds reasonable.
But what happens when airlines quietly change algos...to raise prices because of my browsing habits, IP, or CC used?
I bet you this is coming
Re: The Welfare Effects of Dynamic Pricing: Evidence from Airline Markets
#4Yeah... Problem is they control supply as well. I would agree with the conclusion only if I would fly business destinations only. As it stands right now, I have to buy tickets to Mexico 6-8 months in advance, with no right to cancel them, even if life has other plans all of a sudden.
Re: The Welfare Effects of Dynamic Pricing: Evidence from Airline Markets
#5I agree with the paper's conclusions. Dynamic pricing is a good thing. But lets take a counterexample: Amazon tried this years ago. They changed pricing on the same sku based on who was shopping for it. The blowback was tremendous. Amazon had to actually back down. My take is that consumers understand and are willing to put up with dynamic pricing for airplane seats because the algorithm is presumably understood. I'm…
> to raise prices because of my browsing habits, IP, or CC used?
How would this work when most people get their flights through aggregators? I search for flights on Google Flights. I imagine Google Flights just hits a database somewhere to get times, prices, number of stops, etc.. rather than share my information with every airline.
Re: The Welfare Effects of Dynamic Pricing: Evidence from Airline Markets
#6I agree with the paper's conclusions. Dynamic pricing is a good thing. But lets take a counterexample: Amazon tried this years ago. They changed pricing on the same sku based on who was shopping for it. The blowback was tremendous. Amazon had to actually back down. My take is that consumers understand and are willing to put up with dynamic pricing for airplane seats because the algorithm is presumably understood. I'm…
I think the difference in the Amazon example is that it’s about you as an individual, rather than general market circumstances.
I think most of us are okay paying a surge rate to Uber when it’s raining at the ballpark (market circumstances), but not just because you are on the way to the hospital (personal circumstances).
Re: The Welfare Effects of Dynamic Pricing: Evidence from Airline Markets
#7I agree with the paper's conclusions. Dynamic pricing is a good thing. But lets take a counterexample: Amazon tried this years ago. They changed pricing on the same sku based on who was shopping for it. The blowback was tremendous. Amazon had to actually back down. My take is that consumers understand and are willing to put up with dynamic pricing for airplane seats because the algorithm is presumably understood. I'm…
> to raise prices because of my browsing habits, IP, or CC used? How would this work when most people get their flights through aggregators? I search for flights on Google Flights. I imagine Google Flights just hits a database somewhere to get times, prices, number of stops, etc.. rather than share my information with every airline.
I never, ever, super-duper seriously ever again buy airline tickets from anybody but airlines directly. Use to be cheap like that, thinking how clever I was saving few bucks here and there just by using other seller for the same plane. I use search engine to look generally what's the pricing/timing situation but that's it.
Then you hit issues, delayed flights etc. and every single helpdesk' first question is: did you book with us or through reseller? If by reseller, please contact them, goodbye and have a nice day. If by us, here is completely brand new ticket for free at best possible available time.
Life if too short and I am too poor to deal with such crap when traveling (which is in my case only for vacations, no point ruining them by trying to save few bucks). And quite often direct selling is same price as the other sources.
Re: The Welfare Effects of Dynamic Pricing: Evidence from Airline Markets
#8I agree with the paper's conclusions. Dynamic pricing is a good thing. But lets take a counterexample: Amazon tried this years ago. They changed pricing on the same sku based on who was shopping for it. The blowback was tremendous. Amazon had to actually back down. My take is that consumers understand and are willing to put up with dynamic pricing for airplane seats because the algorithm is presumably understood. I'm…
> to raise prices because of my browsing habits, IP, or CC used? How would this work when most people get their flights through aggregators? I search for flights on Google Flights. I imagine Google Flights just hits a database somewhere to get times, prices, number of stops, etc.. rather than share my information with every airline.
From my personal experience that sort of stuff doesn't happen anymore due to aggregators. Prices do change based on the moment you searched, but I've constantly been getting the same price across ITA Matrix / Google Flights / Airline Official Website / Priceline
No Incognito or VPN needed
What I do still see changing based on different metrics like IP are car rental prices and hotel prices
All US car rental companies give much cheaper prices to foreigners. I don't know the reasoning but its absurd, A rental car in Manhattan for Easter weekend will cost you $300/day on kayak.com and $70/day at the same exact branch on kayak.com.hk (this also works on the companies official websites when changing "country of residence")
Re: The Welfare Effects of Dynamic Pricing: Evidence from Airline Markets
#9Yeah... Problem is they control supply as well. I would agree with the conclusion only if I would fly business destinations only. As it stands right now, I have to buy tickets to Mexico 6-8 months in advance, with no right to cancel them, even if life has other plans all of a sudden.
Someone has to take the risk that life happens. You can take that risk (non-refundable) or you can pay the airline a higher price to take that risk (refundable).
Re: The Welfare Effects of Dynamic Pricing: Evidence from Airline Markets
#10Some notes for the non-economically schooled readers:
- Ungated (working paper) versions are here[1] and here[2]
- This was published in Econometrica, one of the top journals in economics. That doesn't mean that the results are true, but it means that the the math and methodology are probably sound. If you want to attack the results, the weaknesses are probably in the (implicit) model assumptions.
- In economic lingo, "welfare" means consumer surplus (buyer gets a good deal) + producer surplus (seller makes a profit). Standard academic economics analysis is indifferent wether the producer or consumer gets the profits (i.e. between producers selling at costs and consumers buying cheaper that they'd be willing to pay, and producers maximizing profit while consumers maximum they're willing to pay). "Higher welfare" in dynamic pricing vs uniform pricing means that the sum is higher in dynamic pricing. In this context it basically means that more flights are flown using dynamic pricing than would have been in uniform pricing. Negative externalities from more flights are usually out of scope for a paper like this.
- Airlines can adjust prices continuously for the same flight as a response to demand changes, or price discrimination (charge more to those willing to pay more, i.e. business travelers). The paper claims as a key contribution the disentanglement of these motives. I haven't gone through it to see if it's sound, but when since it's published in Econometrica, it will probably take quite some time to fully digest.
[1] https://www.nber.org/system/files/working_papers/w28989/w289...
[2] https://cowles.yale.edu/sites/default/files/files/pub/d21/d2...