Research: Jim Dana, Management & Strategy
pricing is no mystery to Professor James Dana
flyer might become uneasy visiting James D. Dana Jr.'s
sixth floor corner office at the Kellogg School of Management.
On top of a file cabinet, four commercial airplane models
stand conspicuously in front of a pint-sized slot machine.
that Dana, 42, an associate professor of management and strategy
who studies airline-pricing strategies, has a witty sense
of humor. Yet he sees more rational forces at work in the
industry that sometimes resembles a down-and-out gambler.
ironic that airlines have all these sophisticated pricing
strategies, and they don't make any money," he
as much math goes into figuring these strategies as calculating
the planes' take-off and landing patterns.
on the airline industry shows, among other things, that the
business travelers' view of "price gouging"
is largely a myth; they too benefit from the complex system
of advance purchases aimed largely at leisure travelers. He
argues that airlines employ these sophisticated pricing strategies
because they bear significant costs for flying empty seats.
By the late 1990s,
Dana says the major airlines (American, Delta, United) were
on the verge of sustained profitability, but the events of
Sept. 11, 2001, showed they're sensitive to unexpected
For Dana, economics
is all in the family. He is married to Kathryn Spier, also
professor of management and strategy at Kellogg. (They have
a son who will be 9 in August). His father is a retired professor
of economics at Lawrence University, Appleton, Wis. Both father
and son graduated from Yale University as undergraduates and
received their doctorates from the Massachusetts Institute
Shortly after coming
to Kellogg in 1994 from teaching positions at the University
of Chicago and Dartmouth College, Dana suffered a brain aneurysm
and then a stroke. He was given less than a 50-50 chance of
was long and difficult, yet he considers himself "extremely
fortunate" in two respects. Before the stroke, he explains,
"you feel like you're entitled to your life; now I view
life as a gift." In addition, Dana has not lost the ability
to do what he loves most — research and teaching.
Dana is engaging and funny, and his interests are wide ranging.
In conversation, he incorporates examples from various disciplines
— including marketing, operations research and economics.
He discusses with equal ease pricing strategies and consumer
demand in the airline industry, Blockbuster Video, grocery
stores, and even newer Major League Baseball stadiums.
His use of highly
complex mathematical models in his research papers may make
his findings difficult for wide public debate and dissemination,
but his work sheds light on the often mystifying world of
airlines and their practices. The research, he says, seeks
to answer a relatively simple question: "How do markets
allocate the costs of unused travel?"
executives have sometimes claimed that, in effect, pleasure
travel subsidizes business travel, not the other way around.
Dana, not a spokesperson
for the industry, would be hard pressed to disagree. Pleasure
travelers use seats that would otherwise fly empty, making
it possible for airlines to compete more vigorously for business
His research emphasizes
differences in consumer behavior when supply is scarce and
demand high, versus the current market situation, with relatively
low consumer demand and an excess supply of planes, favors
both low-cost airlines (such as Southwest and America West)
and corporate travelers.
"As long as
demand remains soft, business travelers do not need to pay
a premium for the conveniences of having their preferred departure
time, because capacity is readily available," Dana explains.
Now about that
Professor James Dana
Dana is an economist whose research interests include the
pricing under demand uncertainty, the theoretical analysis
of price dispersion and price discrimination, and other topics
in theoretical industrial organization. He applies this research
to developing more effective strategies for managing demand
uncertainty, particularly in the airline and entertainment
publications include: "Competition in Price and Availability
when Availability is Unobservable," the RAND Journal
of Economics, Vol. 32, No. 3; and "Monopoly Price
Dispersion Under Demand Uncertainty," International
Economic Review, Vol. 42, No. 3.
an associate editor of the Journal of Industrial Economics.