Using Information Markets for Pricing: The Case of the Airline Industry

Abstract

This study evaluates the applicability of information markets to pricing in the airline industry. An information market was established, in which seats on a specific flight were traded for five rounds. Three types of estimates were gathered in each round: the average bid, asking prices, and transaction prices. This study examines whether and why one of them estimated the actual price accurately. The most accurate estimate was the average transaction price in the first round (estimation error of 0.39%). The main finding is that an information market can serve as a decision support tool in the pricing process in the airline industry. The study is innovative in offering possible explanations as to the mechanism that leads these markets to produce accurate results.