Publication Date: November 2021
Revision Date: March 2022
Although typically modeled as a centralized ﬁrm decision, pricing often involves
multiple organizational teams that have decision rights over speciﬁc pricing inputs.
We study team input decisions using comprehensive data from a large U.S. airline.
We document that pricing at a sophisticated ﬁrm is subject to miscoordination across
teams, uses persistently biased forecasts, and does not account for cross-price elasticities.
With structural demand estimates derived from sales and search data, we ﬁnd
that addressing one team’s biases in isolation has little impact on market outcomes.
We show that teams do not optimally account for biases introduced by other teams.
We estimate that corrected and coordinated inputs would lead to a signiﬁcant reallocation
of capacity. Leisure consumers would beneﬁt from lower fares, and business
customers would face signiﬁcantly higher fares. Dead-weight loss would increase in
the markets studied. Finally, we discuss likely mechanisms for the observed pricing
Keywords: Pricing, Organizational Structure, Revenue Management, Behavioral IO
JEL Classification Codes: C11, C53, D22, D42, L10, L93CFDP 2312