A Model of Dynamic Limit Pricing with an Application to the Airline Industry
构建了一个动态限制定价模型，解释在位航空公司为何在面临西南航空进入威胁时大幅降价，并通过校准模型量化信息不对称和补贴对福利的影响。
We develop a dynamic limit pricing model where an incumbent repeatedly signals information relevant to a potential entrant’s expected profitability. The model is tractable, with a unique equilibrium under refinement, and dynamics contribute to large equilibrium price changes. We show that the model can explain why incumbent airlines cut prices dramatically on routes threatened with entry by Southwest, presenting new reduced-form evidence and a calibration that predicts a pattern of price changes across markets similar to the one observed in the data. We use our calibrated model to quantify the welfare effects of asymmetric information and subsidies designed to encourage Southwest’s entry.