Bundling in Advance Sales: Theory and Evidence from Round‐Trip versus Two One‐Way Tickets

Warning: is_dir(): open_basedir restriction in effect. File(/libraries) is not within the allowed path(s): (/home/web1050:/usr/share/php) in libraries_get_libraries() (line 176 of /home/web1050/public_html/sites/all/modules/contrib/libraries/libraries.module).

<p>We theoretically derive an optimal price for a bundle of two goods that are sold in advance to risk-averse buyers. The theory predicts that a round-trip ticket is less expensive than two one-way tickets when demands for the outbound and the inbound are uncertain and positively correlated. Using a unique airlines dataset, we find evidence that is consistent with the theory; round-trip bundle discounts exist and they are larger for passengers who buy early in advance, stay on a Saturday night, and have higher valuations. We also find that the bundle discounts decrease with competition.</p>