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Separating Between Unobserved Consumer Types: Evidence From Airlines

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  • Diego Escobari
  • Manuel A. Hernandez

Abstract

We propose an alternative approach to identify unobserved consumer types and assess whether firms price discriminate. Unlike other screening schemes that rely on quantity discounts or product differentiation, in our finite mixture structure individuals have unit demands and the product is homogeneous. We implement the model using an original U.S. airlines data set. The results support the existence of two demand types. The high‐type “business” traveler is less price sensitive, has a higher valuation, and pays a higher price than the low type “tourist.” The proportion of high types also increases as the departure date nears. (JEL C23, L93, R41)

Suggested Citation

  • Diego Escobari & Manuel A. Hernandez, 2019. "Separating Between Unobserved Consumer Types: Evidence From Airlines," Economic Inquiry, Western Economic Association International, vol. 57(2), pages 1215-1230, April.
    • Handle: RePEc:bla:ecinqu:v:57:y:2019:i:2:p:1215-1230
    DOI: 10.1111/ecin.12736
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    References listed on IDEAS

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    Cited by:

    1. Yaghoub Abdi & Xiaoni Li & Xavier Càmara-Turull, 2023. "Firm value in the airline industry: perspectives on the impact of sustainability and Covid-19," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-24, December.
    2. Chen, Jihui, 2024. "Does COVID-19 decrease price dispersion? Recent evidence from the airline industry," Research in Economics, Elsevier, vol. 78(2).
    3. Sunhyung Lee & Zexuan Liu & Haojun Yu, 2021. "Heterogeneous price effects and increased price dispersion from quantity‐based congestion management," Economic Inquiry, Western Economic Association International, vol. 59(3), pages 1378-1402, July.
    4. Ivaldi, Marc & Petrova, Milena & Urdanoz, Miguel, 2022. "Airline cooperation effects on airfare distribution: An auction-model-based approach," Transport Policy, Elsevier, vol. 115(C), pages 239-250.
    5. Ivaldi, Marc & Petrova, Milena J & Urdanoz, Miguel, 2021. "Airline Cooperation Effects on Airfare Distribution: An Auction-model-based Approach," TSE Working Papers 21-1259, Toulouse School of Economics (TSE).
    6. Marc Ivaldi & Milena J Petrova & Miguel Urdanoz, 2021. "Airline Cooperation Effects on Airfare Distribution: An Auction-model-based Approach," Post-Print hal-03455506, HAL.

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    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise

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