Prices, prices and prices: A study in the airline sector

Abstract

This article creates and empirically analyzes a dynamic pricing framework. The model includes the main theories on prices in the literature, and dynamically analyzes how companies change their pricing policies according to different circumstances. Through the use of regressions, the article shows the relative long and short-term impact on pricing equations (strategic versus operational matters), and on production conditions versus demand perspectives in the setting of operational prices. In addition, it highlights how the proportions of these pricing perspectives change in the airline sector according to the effect of the environment on the configuration of the strategy (determined by monthly and hourly seasonality), and also according to the nature of this competitive strategy (determined by the characteristics of the company and the destination airport). The results confirm our framework, and show how firms combine the different perspectives in their pricing strategies.