Asymmetric Price Adjustments in Airlines

Diego Escobari
2012 Social Science Research Network  
This paper uses a unique daily time series data set to investigate the asymmetric response of airline prices to capacity costs driven by demand fluctuations. We use a Markov regime-switching model with time-varying transition probabilities to capture the time variation in the response. The results show strong evidence of asymmetric price adjustments: positive cost shifts have a large positive effect, while negative cost shifts have no effect. The asymmetry is also explained by summer travel,
more » ... not by the size of cost shifts. The findings show the importance of consumer heterogeneity and capacity constraints as a source of asymmetric responses.
doi:10.2139/ssrn.2717780 fatcat:nl3437z6hvcrnobigvbrs26oau