CFDP 2312

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

Author(s): 

Publication Date: November 2021

Pages: 57

Abstract: 

We study how organizational boundaries affect pricing decisions using comprehensive data from a large U.S. airline. We document that the firm’s advanced pricing algorithm, utilizing inputs from different organizational teams, is subject to multiple biases. To quantify the impacts of these biases, we estimate a structural demand model using sales and search data. We 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 coordinating organizational outcomes leads to higher prices/revenues and increased deadweight loss in the markets studied. 

Keywords: Pricing Frictions, Organizational Inertia, Dynamic Pricing, Revenue Management, Behavioral IO

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

JEL Classification Codes: C11C53D22D42L10L93