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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

#11

Post by Ekaros »

saiya-jin wrote: post #7
offbynull wrote: post #5

Earlier quoted context omitted.

> 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…

For vacations it might make sense to buy from travel agency at least in EU. Flight cancelled? Don't have to worry about getting refund on other things either. I had vacation booked when covid hit with all restrictions, flight+hotel(my choice) from agency, full refund without any questions asked.

So either go with agency, pay the premium for them to sort it out if possible. Or then directly to airline. The results might vary, but per location there might be perks with either.

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

#12

Post by mfringel »

IG_Semmelweiss wrote: post #3

I 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…

A key differentiator is that airline seats are a perishable good.

That is, an empty seat has value until the plane takes off, at which point the value goes to zero. On the flip side, a traveler has an opportunity to be in that seat until the plane takes off, at which point its value is zero. People tend to understand that those values continuously vary with time, and so the price will vary with time.

To contrast, books (in specific) and consumer durables (in general) are not perishable goods. The notable exceptions tend to be time-based; try getting chocolates in the heart-shaped box right before Valentine's Day in the US... and then the day after. Since the value of the book doesn't continuously vary with time over the short-run, people don't expect that the price will vary.

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

#13

Post by tomrod »

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…

Note that journal is Econometrica, not Econometrics, and is widely considered the top journal for quantitative work in economics. (slight nitpick in case OP statement causes confusion).

This is the kind of paper that goes a far way to establish tenure. Good job to the author if that is their stage in their career.

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

#14

Post by em500 »

tomrod wrote: post #13
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…

Note that journal is Econometrica , not Econometrics , and is widely considered the top journal for quantitative work in economics. (slight nitpick in case OP statement causes confusion). This is the kind of paper that goes a far way to establish tenure. Good job to the author if that is their stage in their career.

Noted and corrected, thanks.

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

#15

Post by injidup »

saiya-jin wrote: post #7
offbynull wrote: post #5

Earlier quoted context omitted.

> 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…

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 long. I was rudely informed to be patient as the "relevant department" ( note this term ) is processing it and it takes some time.

10 minutes later I get an email from bravo. All my flights are cancelled.no to information is provided about the reschedule.

I find their webchat app and get in touch.

"How can I help you sir?" Starts the conversation which quickly goes downhill. The man informs me that Bravo is not responsible for rescheduling the flight. My contract is with Singapore airlines. "Have a nice day sir"

No no no and no....I argue with him for over an hour. Eventually he agrees to escalate and then hangs up on me.

I try to contact Singapore airlines but they tell me to go back to Bravo. It's their ticket booking.

A day later I call back to Bravo and ask them the status. They just stonewall me. Everything is handled by the "relevant department" and I will get an "email as soon as possible" They refuse to divulge any information.

They start pressuring.me to cancel. They promise me a full refund. I say no I want a reschedule. "Ok sure but you will have to wait for the RELEVANT DEPARTMENT."

This is nine days before I fly. I've waited now 6 days for any actionable information from Bravo. Nothing comes. Eventually I give in..I book a new flight direct with Singapore airlines.

I contact the bravo chat again and ask them to cancel. "Ok sir but we can only refund you the part of the ticket that was cancelled". That is 1/4.

I explode..I post the chat log I'd recorded from yesterday showing that I'd been promised a full refund. "Yes sir ... Of course sir.but there will be a 35 euro handling fee"

No the fuck there won't be I responded and posted the recorded log where I'd explicitly the day before asked about handling fees and were promised there would be none.

I asked when I should expect the refund. "I've notified the RELEVANT DEPARTMENT and they will contact you as soon as possible"

At this point I realise their business strategy. They can offer cheaper flights because when everything goes well the customer gets the flight. If however the airline cancels one flight Bravo can then dick the customer around and attempt to find excuses not to pay up.

I somehow doubt I will get much of the 1000 euros out of them they owe me.

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

#16

Post by atyppo »

IG_Semmelweiss wrote: post #3

I 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…

This already happens on an extent on Delta's website. I've had it happen multiple times where I receive a higher upgrade offer price than others traveling with me on a separate reservation. Other times where even the price of the ticket is different, despite vehement denial from someone in Ed Bastian's office. Hence I frequently use incognito and change my VPN's location to search and get cheapest mileage-based offers since this isn't searchable on Google Flights. Quite scummy to think they're offering higher prices to their more loyal customers (I travel about 50k miles/yr on Delta). Makes me want to become an airline free agent since I'm in NYC and can get direct flights pretty much anywhere.

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

#17

Post by blunte »

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).

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.

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

#18

Post by atyppo »

saiya-jin wrote: post #7
offbynull wrote: post #5

Earlier quoted context omitted.

> 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…

Yes, this is generally true, but not always (although this is definitely an outlier). JFK-SCL was $1200 cash through the airline or $287 through a travel agent. Guess which I chose?

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

#19

Post by tomrod »

IG_Semmelweiss wrote: post #3

I 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…

> Dynamic pricing is a good thing

I'm not sure dynamic pricing is necessarily pareto improving (I think this might be what you mean by "is a good thing"? For folks that are learning this lingo, pareto improving -- at least one party better off and none worse off). I'd have to think through it a bit.

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

#20

Post by cbdumas »

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.
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