The Hidden Side of Dynamic Pricing: Evidence from the Airline Market

It is standard practice for carriers to set fares by choosing, at each point in time, a distribution consisting of a possibly different fare for each seat on an aircraft. A model describes how fare distributions are shaped and evolve over time, thus unveiling some hidden dynamic pricing strategies. Empirical analysis supports two main theoretical predictions. First, fare distributions are increasing over the seats' order of sale. Second, fare distributions move downward over time to reflect the perishable nature of seats; such a shift is contrasted by the presence of high willingness-to-pay consumers in the late booking periods.