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Sensitivity of Prices to Demand Shocks: A Natural Experiment in the San Francisco Bay Area

Author

Listed:
  • Volodymyr Bilotkach

    (University of California-Irvine)

  • Yuriy Gorodnichenko

    (University of California-Berkeley)

  • Oleksandr Talavera

    (School of Economics, University of East Anglia)

Abstract

We analyze the impact of a freeway interchange collapse in the San Francisco Bay area on the difference in airfare quotes for travel into the area's main airports. The incident temporarily made Oakland airport a less attractive choice for traveling to San Francisco. Using a sample of fare quotes collected on-line we find that fares for travel into Oakland were 6-7 percent lower while the interchange was out of service. Our results imply that the demand-side shock was well absorbed by the supply side, and adjustment of prices and return to the status quo once the shock vanished was swift.

Suggested Citation

  • Volodymyr Bilotkach & Yuriy Gorodnichenko & Oleksandr Talavera, 2010. "Sensitivity of Prices to Demand Shocks: A Natural Experiment in the San Francisco Bay Area," University of East Anglia Applied and Financial Economics Working Paper Series 004, School of Economics, University of East Anglia, Norwich, UK..
    • Handle: RePEc:uea:aepppr:2010_4
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    References listed on IDEAS

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    Cited by:

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    2. Alex Nikolsko‐Rzhevskyy & Oleksandr Talavera & Nam Vu, 2023. "The flood that caused a drought," Economic Inquiry, Western Economic Association International, vol. 61(4), pages 965-981, October.
    3. Wang, Kun & Xia, Wenyi & Zhang, Anming & Zhang, Qiong, 2018. "Effects of train speed on airline demand and price: Theory and empirical evidence from a natural experiment," Transportation Research Part B: Methodological, Elsevier, vol. 114(C), pages 99-130.
    4. Escobari, Diego, 2017. "Airport, airline and departure time choice and substitution patterns: An empirical analysis," Transportation Research Part A: Policy and Practice, Elsevier, vol. 103(C), pages 198-210.
    5. Cohen, Jeffrey P. & Brown, Mike, 2017. "Does a new rail rapid transit line announcement affect various commercial property prices differently?," Regional Science and Urban Economics, Elsevier, vol. 66(C), pages 74-90.
    6. Cerquera Dussán, Daniel & Ullrich, Hannes, 2010. "Consumer welfare and unobserved heterogeneity in discrete choice models: The value of alpine road tunnels," ZEW Discussion Papers 10-095, ZEW - Leibniz Centre for European Economic Research.

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    More about this item

    Keywords

    natural experiment; price stability; demand shocks; congestion;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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