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Bundling in Advance Sales: Theory and Evidence from Round‐Trip versus Two One‐Way Tickets

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  • Diego Escobari
  • Paan Jindapon
  • Nicholas G. Rupp

Abstract

We theoretically derive an optimal price for a bundle of two goods that are sold in advance to risk‐averse buyers. The theory predicts that a round‐trip ticket is less expensive than two one‐way tickets when demands for the outbound and the inbound are uncertain and positively correlated. Using a unique airlines dataset, we find evidence that is consistent with the theory; round‐trip bundle discounts exist and they are larger for passengers who buy early in advance, stay on a Saturday night, and have higher valuations. We also find that the bundle discounts decrease with competition.

Suggested Citation

  • Diego Escobari & Paan Jindapon & Nicholas G. Rupp, 2024. "Bundling in Advance Sales: Theory and Evidence from Round‐Trip versus Two One‐Way Tickets," Journal of Industrial Economics, Wiley Blackwell, vol. 72(4), pages 1369-1396, December.
    • Handle: RePEc:bla:jindec:v:72:y:2024:i:4:p:1369-1396
    DOI: 10.1111/joie.12393
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    References listed on IDEAS

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    1. Escobari, Diego & Jindapon, Paan, 2014. "Price discrimination through refund contracts in airlines," International Journal of Industrial Organization, Elsevier, vol. 34(C), pages 1-8.
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