Simple pricing rules in complex air transport systems

When a complex system is hierarchical, and, therefore, near-decomposable, agents can reach a satisfying result (i.e. close to the optimum) by applying a rule-of-thumb approach (Simon, 1962). Economists suggest that low-cost carriers follow a simple pricing rule which consists of increasing (decreasing) fares when the flight is (less) busier than expected, i.e. below (above) the flight booking curve. Using data on posted fares covering 18 months and 81 Ryanair routes, we test and empirically confirm this conjecture. In addition, we find that Ryanair assumes an asymmetric pricing behavior in response to deviations from the booking curve: larger fare changes if above, and smaller ones if below the curve. We also find higher responses to deviations as markets become more crowded. These results show that in complex competitive environments, firms choose simple pricing strategies, that can be rather easily adjusted and tailored to cope with specific features of different products/markets.