Organizational Structure and Pricing: Evidence from a Large U.S. Airline

58 Pages Posted: 18 Nov 2021

See all articles by Ali Hortaçsu

Ali Hortaçsu

University of Chicago; National Bureau of Economic Research (NBER)

Timothy Schwieg

University of Chicago - Department of Economics

Kevin Williams

Yale School of Management; Yale University - Cowles Foundation

Hayden Parsley

The University of Texas at Austin

Olivia Natan

affiliation not provided to SSRN

Multiple version iconThere are 3 versions of this paper

Date Written: September 30, 2021

Abstract

We study how organizational boundaries affect pricing decisions using comprehensive data provided by a large U.S. airline. We show that contrary to prevailing theories of the firm, advanced pricing algorithms have multiple biases. To quantify the impacts of these biases, we estimate a structural demand model using sales and search data and recover the demand curves the firm believes it faces using forecasting data. In counterfactuals, we show that correcting biases introduced by organizational teams individually have little impact on market outcomes, but addressing all biases simultaneously leads to higher prices and increased dead-weight loss in the markets studied.

Keywords: Pricing Frictions, Organizational Inertia, Dynamic Pricing, Revenue Man- agement, Behavioral IO

JEL Classification: C11, C53, D22, D42, L10, L93

Suggested Citation

Hortaçsu, Ali and Schwieg, Timothy and Williams, Kevin and Parsley, Hayden and Natan, Olivia, Organizational Structure and Pricing: Evidence from a Large U.S. Airline (September 30, 2021). NET Institute Working Paper No. 21-09, Available at SSRN: https://ssrn.com/abstract=3945094 or http://dx.doi.org/10.2139/ssrn.3945094

Ali Hortaçsu (Contact Author)

University of Chicago ( email )

1101 East 58th Street
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Timothy Schwieg

University of Chicago - Department of Economics ( email )

1101 East 58th Street
Chicago, IL 60637
United States

Kevin Williams

Yale School of Management ( email )

New Haven, CT 06520
United States

HOME PAGE: http://som.yale.edu

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States

Hayden Parsley

The University of Texas at Austin ( email )

United States

Olivia Natan

affiliation not provided to SSRN

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