  We develop a model of inter-temporal and intra-temporal price discrimination
by monopoly airlines to study the ability of different discriminatory pricing
mechanisms to increase efficiency and the associated distributional
implications. To estimate the model, we use unique data from international
airline markets with flight-level variation in prices across time, cabins, and
markets and information on passengers' reasons for travel and time of purchase.
The current pricing practice yields approximately 77% of the first-best
welfare. The source of this inefficiency arises primarily from private
information about passenger valuations, not dynamic uncertainty about demand.
We also find that if airlines could discriminate between business and leisure
passengers, total welfare would improve at the expense of business passenger
surplus. Also, replacing the current pricing that involves screening passengers
across cabin classes with offering a single cabin class has minimal effect on
total welfare.
