Agenda

This event is part of VSM Lectures, a series of seminars by top scholars from renowned international universities and institutions. Invited speakers present their recent studies, share key findings, and explore the impact of their research on the challenges currently faced by society and organizations.

Welfare Consequences of Upgrades: Evidence from the Airline Industry 

VSM lecture held by Domenico Fabrizi, Professor of Marketing and Consumer Behavior, Catolica Lisbon

The event will also be available online via Gmeet.

Abstract
Using upgrades - fees that customers pay to access a premium quality product after purchasing a regular one - can significantly affect consumer welfare. On the one hand, regular consumers benefit from potentially accessing the monopolist's higher-quality goods at a discounted price. On the other hand, the monopolist will seek to capture surplus from these gains from trade by offering a different price menu for all goods. Whether consumer welfare will rise or fall when a firm introduces upgrades will depend on the relative magnitudes of these two effects. This research aims to disentangle these two effects in the context of an international airline that gives economy class passengers the option to pay an additional fee to upgrade to business class. I develop and estimate a model of airline pricing to assess the effects of upgrades via counterfactual simulations. I show that the upgrade option improves the allocation of passengers among cabins over time and increases consumer and producer welfare by 1.5% and 2% respectively.