Analyzing multiple pricing decisions for substitutes under stochastic demand: An experiment

Ayvaz-Cavdaroglu N., Buyukboyaci M. İ.

MANAGERIAL AND DECISION ECONOMICS, vol.43, no.5, pp.1351-1361, 2022 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 43 Issue: 5
  • Publication Date: 2022
  • Doi Number: 10.1002/mde.3459
  • Journal Name: MANAGERIAL AND DECISION ECONOMICS
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus, International Bibliography of Social Sciences, Periodicals Index Online, ABI/INFORM, Aerospace Database, Business Source Elite, Business Source Premier, Communication Abstracts, EconLit, Metadex, Psycinfo, Public Affairs Index, Civil Engineering Abstracts
  • Page Numbers: pp.1351-1361
  • Middle East Technical University Affiliated: Yes

Abstract

This study investigates how individuals choose prices for two substitutes under stochastic demand in an airline setting. We design two treatments: "symmetrical" and "asymmetrical," meaning the demand distribution of the two flights having the same size of support or not. Several insights are obtained. First, the decision makers' price choices are closer to the theoretical benchmarks in the symmetrical setting. Next, the subjects do not want to overprice and fly with empty seats, exhibiting "loss aversion with reference point." Finally, the subjects often treat the flights as independent rather than interrelated and price them separately, using an anchoring-and-adjusting heuristic.