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Effects of price discrimination on airline ancillary good sales : a multiple treatment propensity score weighting approach.

Ambrosius, M.F. (2017) Effects of price discrimination on airline ancillary good sales : a multiple treatment propensity score weighting approach.

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Abstract:Ticket fares have decreased by almost 40% over the last two decades, while demand has doubled. With the decreasing margins on tickets, ancillary products and services have become an important source of income for airlines. This study is motivated by the prevalence to charge for ancillary services and investigates the effects of different prices on customer purchasing behavior of checked baggage, in addition to the flight ticket. Empirical sales results from a low-cost carrier were used, in which customers were assigned to one of the four price levels, between June 2016 and June 2017. Segments were created by group size (group size 1 versus >1 segments) and number of days before departure (DBD) booked (DBD ≤3 or ≥16 versus DBD >3 or <16 segments), to get granular results that would otherwise be eliminated by larger sample noise. Multiple propensity score analysis was used to balance the six booking specific covariates. The average treatment effect of the different price treatments on the purchase decision was assed using propensity score weighting. The population was distributed over the four treatments; -2 (12%), 0 (56%), +2 (20%), and +4 (12%). The propensity scores reduced the average standard deviation by 33%, from 0.166 to 0.112. Only the two segments with group size >1 were significant at the 0.05 level. All price treatments were estimated to be insignificant at any of the segments. Probabilities to buy at the unweighted data were both higher and more differentiated than after propensity modelling, meaning the population was subject to selection bias. The research showed that customers were not significantly affected by the price treatments, and that their checked baggage purchasing probability is strongly correlated to DBD and group size.
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:83 economics, 85 business administration, organizational science
Programme:Business Administration MSc (60644)
Link to this item:http://purl.utwente.nl/essays/74007
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