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.