Demand-shock characteristics and pricing behavior: A natural experiment from UEFA Euro 2016

Abstract

We consider a multi-period, limited capacity, unsegmented airline pricing model whose solution returns a sequence of increasing prices based on the order of sale. We show that a positive demand shock corresponding to an increase in the arrival rate reduces within-period price dispersion and has a minor impact on the sequence’s maximum prices. Alternatively, upward shifts in customers’ willingness-to-pay lead to higher maximum prices but do not affect within-period price dispersion. Demand shocks are identified in our sample by the draw that created the stage groups for the UEFA Euro 2016 soccer tournament. After the draw, some flights became suitable to transport foreign supporters to the location where matches were scheduled. Consistent with the theory, a different price behavior is observed between UK and continental European routes.