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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

#41

Post by notahacker »

geysersam wrote: post #23
em500 wrote: post #10

Some 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…

Isn't the conclusion trivial? With perfect price discrimination, every buyer exposes their exact utility gain from buying the product, that's the price they'll pay for it. Of course the resource will be allocated optimally. Naturally in this situation only the seller will benefit from the transaction. Everyone else is +-0. Utility/"welfare" is maximized but consumers get none of it. And of course, in the end even tal…

It's nontrivial because the price discrimination isn't perfect, and the paper looks at a number of secondary considerations (most notably the assumption that pricing dynamicalkly purely based on how far in advance bookings are made captures the difference between a class of business travellers who prefer a situation in which they have to pay even higher prices to ensure seats are available with a day or two's notice, and leisure travellers whose flexibility around travel dates means they care more about price than availability of the lowest price tickets)

I do agree that it's unremarkable that price discrimination results in higher total welfare than uniform prices though, and all the other conclusions are completely in line with expectations. Its also the case that the airline's own price discrimination models will be more sophisticated with access to better (commercially sensitive) data than this stylised version

Re: The Welfare Effects of Dynamic Pricing: Evidence from Airline Markets

#42

Post by [deleted] »

ccalloway wrote: post #31
colinmhayes wrote: post #30

Earlier quoted context omitted.

Most goods that can be dynamically priced are dynamically priced. The thing is that most goods are not supply constrained. When there is competition and an unlimited supply people will just pretend they have a lower willingness to pay so dynamic pricing doesn't really work.

This does explain why Playstations are not dynamically priced, but it fails to explain why concert tickets are not dynamically priced.

[deleted]

Re: The Welfare Effects of Dynamic Pricing: Evidence from Airline Markets

#43

Post by mirchiseth »

mdavis6890 wrote: post #9
tandr wrote: post #4

Yeah... 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).

Thinking in terms of risk and who bears it is the right way to think. Thanks for bringing this up.

Re: The Welfare Effects of Dynamic Pricing: Evidence from Airline Markets

#44

Post by mirchiseth »

ccalloway wrote: post #24
blunte wrote: post #17

Earlier quoted context omitted.

But is the extra cost you pay (for that risk) fair relative to the risk of revenue loss for the airlines? I highly doubt that. This is an industry that has a history of ever-increasing executive pay rates with gradual reductions in service quality, gradual increases in incidental fees, frequent bankruptcies, and occasional governmental bail-outs.

It bears no relation to the risk of revenue loss for the airline. It is based on demand. An airline runs hundreds of flights a day, and it knows that a certain percentage are going to be less than full. It tries to optimize as best it can. You on the other hand are going to be seriously annoyed if you have to change your plans and you lose hundreds of dollars, maybe a significant proportion of the money you have for…

Risk and insurance go hand in hand. +1 on self-insurance says the guy who is buying 22/23 season passes for skiing.

Re: The Welfare Effects of Dynamic Pricing: Evidence from Airline Markets

#45

Post by kingbirdy »

ccalloway wrote: post #31
colinmhayes wrote: post #30

Earlier quoted context omitted.

Most goods that can be dynamically priced are dynamically priced. The thing is that most goods are not supply constrained. When there is competition and an unlimited supply people will just pretend they have a lower willingness to pay so dynamic pricing doesn't really work.

This does explain why Playstations are not dynamically priced, but it fails to explain why concert tickets are not dynamically priced.

Concert tickets _are_ dynamically priced, at least for some events. See Ticketmaster's "Official Platinum"[0] which is a dynamic pricing system for the best seats, I imagine other companies have something similar.

[0]: https://help.ticketmaster.com/s/article/What-are-Official-Pl...

Re: The Welfare Effects of Dynamic Pricing: Evidence from Airline Markets

#46

Post by secabeen »

cbdumas wrote: post #20

Why don't retailers of luxury durable goods use dynamic pricing? Surely Best Buy would love to charge the actual market price (~$800 from a quick eBay search) for a PS5. Sony could just auction batches of consoles to retailers and let them price / promote however they want. Instead they stick to MSRP, leading to shortages at retailers and leaving lots of money on the table for resellers. I don't get it.

Because Sony wants the official retail price to be $X. If you get an allocation from Sony, and then sell at $x+300, you won't get any more allocation.

Re: The Welfare Effects of Dynamic Pricing: Evidence from Airline Markets

#47

Post by bschne »

clairity wrote: post #39
em500 wrote: post #10

Some 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…

> "Standard academic economics analysis is indifferent wether [sic] the producer or consumer gets the profits..." that's an objective-sounding position to take, but it's certainly not, even from a purely detached, academic perspective. in most situations, consumer surplus is better for a market and for the overall economy, because it provides more choice points for more efficient allocation. in the unfortunately rare…

> seemingly small (implicit) assumptions like this that can have huge implications on results necessitates skepticism toward academic economics

It mostly just means you need to be very careful in interpreting the results, or be careful when someone uses it to motivate policy prescriptions as they themselves may have a questionable interpretation — like with any academic finding.

Re: The Welfare Effects of Dynamic Pricing: Evidence from Airline Markets

#48

Post by DiggyJohnson »

geysersam wrote: post #23
em500 wrote: post #10

Some 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…

Isn't the conclusion trivial? With perfect price discrimination, every buyer exposes their exact utility gain from buying the product, that's the price they'll pay for it. Of course the resource will be allocated optimally. Naturally in this situation only the seller will benefit from the transaction. Everyone else is +-0. Utility/"welfare" is maximized but consumers get none of it. And of course, in the end even tal…

I think you might find lots of economics results to be “trivial”, because the results do not contain the value of the work. Constructing a model, linking it to reality, and finding that it fits our expectations (captured in the “trivial conclusion”) and is robust to secondary factors is what’s valuable.

Think about the study of inflation. I’m sure lots of work has been done to show how low interest rates have impacted inflation. I won’t be surprised when they show how these interest rates have led to increased inflation, but I’ll be interested in the mechanics and model leading to the unsurprising result.

Re: The Welfare Effects of Dynamic Pricing: Evidence from Airline Markets

#49

Post by injidup »

notahacker wrote: post #36
injidup wrote: post #15

Earlier quoted context omitted.

I have just run into this with Bravofly. Bought two tickets with Singapore airlines. 4 legs were booked. 14 days before the flight I get an SMS saying Singapore Munich is cancelled. I ring through to Bravo and ask them to reschedule a the flight as is required under EU law. No problem sir we are into it. I think nothing of it. 5 days pass. No email and my booking has not changed. I ring again. Why is this taking so l…

I can add a bit of clarity to that. When you book connecting flights direct with an airline, or with that airline's codeshare partner, or with an authorised reseller, you've got one ticket all the way through which the airline is obliged to fulfil by getting you to your end destination or pay expensive compensation. If they cancel part of the flight, they might have to get you to your end destination on a different r…

I'm not sure this is the case as I actually have a valid SIA booking number and single SIA ticket number. I can verify this on the SIA android app.

Re: The Welfare Effects of Dynamic Pricing: Evidence from Airline Markets

#50

Post by injidup »

sokoloff wrote: post #26
injidup wrote: post #15

Earlier quoted context omitted.

I have just run into this with Bravofly. Bought two tickets with Singapore airlines. 4 legs were booked. 14 days before the flight I get an SMS saying Singapore Munich is cancelled. I ring through to Bravo and ask them to reschedule a the flight as is required under EU law. No problem sir we are into it. I think nothing of it. 5 days pass. No email and my booking has not changed. I ring again. Why is this taking so l…

Long before the point you're at, I'd have let my credit card company know to charge back that transaction and the details why. (I do give companies one solid effort to correct things on their end.)

I've submitted all that information today to the credit card company along with the chat logs.
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