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

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: 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