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SEPARATING BETWEEN UNOBSERVED CONSUMER TYPES: EVIDENCE FROM AIRLINES
Author(s) -
Escobari Diego,
Hernandez Manuel A.
Publication year - 2019
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12736
Subject(s) - homogeneous , valuation (finance) , economics , product type , econometrics , microeconomics , product (mathematics) , product differentiation , set (abstract data type) , computer science , mathematics , finance , geometry , combinatorics , cournot competition , programming language
We propose an alternative approach to identify unobserved consumer types and assess whether firms price discriminate. Unlike other screening schemes that rely on quantity discounts or product differentiation, in our finite mixture structure individuals have unit demands and the product is homogeneous. We implement the model using an original U.S. airlines data set. The results support the existence of two demand types. The high‐type “business” traveler is less price sensitive, has a higher valuation, and pays a higher price than the low type “tourist.” The proportion of high types also increases as the departure date nears. ( JEL C23, L93, R41)