Effects of all-inclusive pricing regulations on airfares: an empirical study of low cost airlines

Regulatory policies fostering price transparency are commonly deemed to be welfare improving on the ground that widespread and accurate information boosts competition which, in its turn, improves consumer’s welfare. In Italy, since June 2007, airlines have been compelled by law to advertise their own fares all-inclusive. We had thus the opportunity to test the above presumption against a well-matched set of data, by comparing average fares and the intensity of dynamic pricing as applied by EasyJet and Ryanair on all European flights before and after the regulatory event. Econometric estimation has been carried out according to the fixed-effects panel methodology. Differences in fares on flights from/to Italy as opposed to fares on other European flights of similar length are taken to be the effect of the new regulations requiring all-inclusive fare advertising. It appears that: i) both carriers lowered their average prices on all routes, ii) dynamic pricing became more and more evident for all routes, and iii) average prices on Italian as opposed to other European routes confirmed tendency to converge towards similar values.