Essays in Decision-making with an Endogeneity Problem

Jae Young Hwang

doi:10.7273/000005050

The proposed dissertation consists of three essays that explore decision-making with an endogeneity problem. The first chapter, “The Impact of Airplane Delays on Airfares,” examines whether and how airplane delays affect airfares, controlling for the endogenous nature of the delay. I use the share of flight frequencies resulting in airplane delays to estimate the Herfindahl–Hirschman Index (HHI). This paper uses air booking data, on-time performance, and demographic data from diverse sources in a fixed-effects model with instrumental variables. I find that airplane delays with a hub airport and taxi time lead to a decrease in airfare. However, market power reverses this effect: delays significantly result in a positive influence on price with market power. I also find that flight distance, income, market power, and the number of frequencies can positively impact airfares. Last, full-service airlines (FSAs) show a wider range of delay minutes than a low-cost carrier (LCC) for prediction analysis. A flight operation process for solving the endogeneity problem is examined in the second chapter, “A Ripple Effect in Flight Operation Process.” The airline industry has been experiencing the new challenge of disruption risk as a result of the ripple delay effect. Not only does the ripple delay effect lead to a decrease in an airline’s profit, but it may also cause the airline’s service quality to deteriorate. This paper analyzes the effects of the ripple delay on the late-arriving aircraft in the flight operation process using a recursive system of equations and survival analysis. I conduct the studies on the effects of ripple delay while considering: (1) How can the ripple effect be mitigated by in-flight operation processes given airplane delays caused by a late-arriving aircraft? (2) How do the taxiway/runway processes affect on-time performance? (3) How much time does a late-arriving aircraft spend recovering? My findings reveal that late-arriving aircraft can influence the time performance of the subsequent downstream flight operation processes. Another finding is that airline employees can cause a 43% increase in the odds of making a recovery for late-arriving aircraft. Using a two-step selection model for another endogeneity problem on online bidding behavior, the third chapter, “Collectible Items in Online Auctions,” analyzes the effects of the “Hall of Fame” designation on the price of sports jerseys on eBay to solve the endogeneity problem for sample selection bias. In particular, I am interested in understanding the popularity of items associated with inductees into the Hall of Fame by way of the weekend effect on bidding behavior, which might help online marketers understand day-dependent price discrimination. Also, herd behavior by crowd effect may cause a customer a purchase intention in a product. I conduct the studies associated with the effect of a celebrity item and herd behavior, considering: (1) Why does a customer purchase a celebrity item while it is expensive and indistinguishable? (2) Does crowd psychology affect an online bidding price? I find that a celebrity item significantly increases the price, which causes a dynamic online auction strategy. Another finding is that more hit counts increase the price, and a higher starting bid percent can increase the price by $20.

Essays in Decision-making with an Endogeneity Problem

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