The Middle Seat. Airline Fare Riddle: One Route, Two Prices
by: Scott McCartney
Jan 08, 2015
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com
TOPICS: Price Discrimination, Supply and Demand
SUMMARY: Airlines charge different prices for the same round-trip ticket depending on where you start your trip, a study conducted for The Wall Street Journal shows.
CLASSROOM APPLICATION: Students can evaluate whether airlines setting different prices for the same round-trip ticket depending on the where flyers start their trips is an example of price discrimination. In some cases the price differences is an example of price discrimination: "Some cities have more buyers of last-minute tickets at higher prices, which drives up the average for tickets sold in one direction over another, a Delta spokesman said." In other cases, it is due to limited capacity and increased demand: "A United spokesman said holiday travel periods drive demand directionally, pushing fares higher."
QUESTIONS:
1. (Advanced) Define third-degree (i.e., multi-market) price discrimination. Consider the case in which flights from New York to London and from London to New York are not full. Suppose the flight from New York to London is more expensive. Is this example of third-degree price discrimination?
2. (Advanced) Define second-degree price discrimination. Business travelers, who have a more price-inelastic demand, sometimes reserve flights at the last minute, while leisure travelers plan ahead. Is the case in which an airline raises the price of a flight as its date approaches an example of second-degree price discrimination?
3. (Introductory) Is the following case about travel between the mainland and Hawaii an example of price discrimination? A United spokesman said holiday travel periods drive demand directionally, pushing fares higher. "There may be fewer deeply discounted seats available on preholiday Hawaii-bound flights because of the increased demand by mainland travelers," he said.
by: Scott McCartney
Jan 08, 2015
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com
TOPICS: Price Discrimination, Supply and Demand
SUMMARY: Airlines charge different prices for the same round-trip ticket depending on where you start your trip, a study conducted for The Wall Street Journal shows.
CLASSROOM APPLICATION: Students can evaluate whether airlines setting different prices for the same round-trip ticket depending on the where flyers start their trips is an example of price discrimination. In some cases the price differences is an example of price discrimination: "Some cities have more buyers of last-minute tickets at higher prices, which drives up the average for tickets sold in one direction over another, a Delta spokesman said." In other cases, it is due to limited capacity and increased demand: "A United spokesman said holiday travel periods drive demand directionally, pushing fares higher."
QUESTIONS:
1. (Advanced) Define third-degree (i.e., multi-market) price discrimination. Consider the case in which flights from New York to London and from London to New York are not full. Suppose the flight from New York to London is more expensive. Is this example of third-degree price discrimination?
2. (Advanced) Define second-degree price discrimination. Business travelers, who have a more price-inelastic demand, sometimes reserve flights at the last minute, while leisure travelers plan ahead. Is the case in which an airline raises the price of a flight as its date approaches an example of second-degree price discrimination?
3. (Introductory) Is the following case about travel between the mainland and Hawaii an example of price discrimination? A United spokesman said holiday travel periods drive demand directionally, pushing fares higher. "There may be fewer deeply discounted seats available on preholiday Hawaii-bound flights because of the increased demand by mainland travelers," he said.
Reviewed By: James Dearden, Lehigh University
No comments:
Post a Comment