Working Paper: CEPR ID: DP15767
Authors: Maarten Janssen; Daniel Garcia; Radostina Shopova
Abstract: In markets, such as those for airline tickets and hotel accommodations, firms sell time-dated products and have private information about unsold capacities. We show that competition under private information explains observed phenomena, such as increased price dispersion and higher expected prices towards the deadline, without making specific assumptions about demand. We also show that private information severely limits the market power of firms and that information exchange about capacity negatively affects consumers. Finally, we inquire into the incentives to unilaterally disclose information or to engage in espionage about rival's capacity and show that these activities are particularly harmful for consumers.
Keywords: dynamic pricing; capacity constraints; private information; disclosure; industrial espionage
JEL Codes: D40; D83; L13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| competition under private information (D82) | increased price dispersion (D49) |
| competition under private information (D82) | higher expected prices (G13) |
| private information limits firms' market power (L10) | lower expected prices (E30) |
| private information limits firms' market power (L10) | lower profits (D33) |
| information exchange about capacity (E22) | collusive outcomes (D43) |
| unilateral disclosure incentives (D82) | higher prices for consumers (D49) |