Price Discrimination in Airline Industries Jennifer Solomon University of Maryland University College In many cases we run into industries that charge various customers different values for an identical good. These industries find that they intensify their revenues by using this method. Those industries that aid by this structure of moneymaking have participated in price discrimination. When you are boarding a flight I am sure you know that the passengers around you have not paid the same price as you.
Is price discrimination suitable or unsuitable for airline passengers? While still analyzing your surrounding son the plane I am sure you may come to realize that there may be some passengers who paid up to five times as much as you.
This is sometimes based on the date they purchased their ticket. Price discrimination is based on the charging of various values to different consumers. The seller does have some control over the price, buyers have different price elasticity’s of demand, and resale of the ticket by the buyer is not possible.
Airline Industry Ideal for Price Discrimination) Each ticket can be sold at a different rate; each and every ticket that is sold through these airlines varies on a number of different reasons. Price also depends on the way the tickets are booked and when the travel will take place. Is price discrimination suitable or unsuitable for airline passengers? The consumer buys the best deal they can find which may come with flying restrictions. If they want extra luggage or food, they may have to pay a little more to have a satisfying flight.
Taking a closer look at the competitive market we will analyze the affects the competition may have on price discrimination. As stated in the article published by FRBB, “ The more competitive the market, the greater the price discrimination on the route” (Stains). As a market experiences more competition it is essential for airlines to lower their airfare. Price discrimination is observed to increase in a competitive market. This is suitable for passengers, both elastic and inelastic consumers. Prices are mainly raised for elastic customers and in some cases both kinds of onsumers get a good deal regardless of their readiness to pay more for airfare. Competition considers those tickets charged to price elastic travelers making this a suitable priced discrimination for the consumer. Price discrimination that is not suitable for the consumer is when we look at business travelers and student travelers. Business travelers have more of a need to arrive at a certain destinations with in the business week. Student travelers will sometimes wait for the cheaper fares or sometimes not fly at all. So as a result the airlines decide to charge business travelers full fare and tend to discount the tickets for students.
This price discrimination assists the airlines to increase its profits by charging business and student’s different prices. Price discrimination is not suitable for business travelers because they end up getting the same flight for a much higher price. As stated in the article “ When price competition heats up, we pay for it in hidden fees”, Pioneer Press 4/15/2012. Before the Carter administration, government regulation of routes and fares meant that the industry was a comfortable oligopoly. Carriers could not compete on price, so they competed on service.
Offering in fight movies, food, generous baggage allowances were the ways they would be able to charge the same amount as competitors. Airline consumers are drawn by the perks offered by the companies and they are inclined to pay more for the services they are provided. There are many different kinds of price discrimination. There are circumstances where the seller charges a different price for each unit. In many cases the consumers are willing to pay. In this case price discrimination is the maximum amount a customer is inclined to pay for an airline ticket.
Methods that used everyday for the use of price discrimination are advanced purchase restrictions, volume discounts, or two part tariffs. This is some of their pricing strategies that move in the direction of price discrimination. By these airlines charging different prices they are able to capture more of the consumer surplus and in the end these airlines come out with a much higher profit. The reasoning to price discrimination gives a monopolist the flexibility to charge elevated volumes to those customers that are willing to pay them without illuminating other ustomers who are not able to pay as much, but are willing to pay much less. I have given a few explanations in which indicate that the airline industry does practice price discrimination. I have distinguished a few different forms of price discrimination. It is found that price discrimination can be both suitable and unsuitable for the consumer, which is purely based on each consumer’s circumstance. I have analyzed the increase in price discrimination with the increase in competition. Price discrimination has been in place for many years and many more years to come because it has proved to be a large profit for the industries involved.
The airline industry wants to keep both elastic and inelastic consumers and by doing this they are able to perform price discrimination. They are able to keep those consumers who are willing to pay more or less along with profit maximizing. Work Cited “Airline industry ideal for price discrimination. ” ETN Global Travel Industry News. (4-10-2011) 12 Apr. 2012 Stavins, Joanna. “Price Discrimination in the Airline Market: The Effect of Market Concentration. ” Federal Reserve Band of Boston. 15-Apr. 2012 “When price competition heats up, we pay for it in hidden fees. ” Pioneer Press. 15 Apr. 2012
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