Essays on pricing under uncertainty

This dissertation analyzes pricing under uncertainty focusing on the U.S. airlineindustry. It sets to test theories of price dispersion driven by uncertainty in the demandby taking advantage of very detailed information about the dynamics of airlineprices and inventory levels as the flight date approaches. Such detailed informationabout inventories at a ticket level to analyze airline pricing has been used previouslyby the author to show the importance of capacity constraints in airline pricing.This dissertation proposes and implements many new ideas to analyze airline pricing.Among the most important are: (1) It uses information about inventories at aticket level. (2) It is the first to note that fare changes can be explained by addingdummy variables representing ticket characteristics. Therefore, the load factor at aticket level will lose its explanatory power on fares if all ticket characteristics areincluded in a pricing equation. (3) It is the first to propose and implement a measureof Expected Load Factor as a tool to identify which flights are peak and which onesare not. (4) It introduces a novel idea of comparing actual sales with average salesat various points prior departure. Using these deviations of actual sales from salesunder average conditions, it presents is the first study to show empirical evidence ofpeak load pricing in airlines. (5) It controls for potential endogeneity of sales usingdynamic panels.The first essay tests the empirical importance of theories that explain price dispersionunder costly capacity and demand uncertainty. The essay calculates a measure of an Expected Load Factor, that is used to calibrate the distribution of demanduncertainty and to identify which flights are peak and which ones are off-peak. Itshows that different prices can be explained by the different selling probabilities. Thesecond essay is the first study to provide formal evidence of stochastic peak-load pricingin airlines. It shows that airlines learn about the demand and respond to earlysales setting higher prices when expected demand is high and more likely to exceedcapacity.