Does price discrimination keep the airline industry alive?
Price discrimination happens when a seller is able to charge different prices to different consumer segments for an identical good. With that said, are airlines the kings of price discrimination? I personally believe that they are. If airlines weren't able to price discriminate, they would go out of business. This is due to the fact that the majority of an airline's profits are derived from first class and business passengers. These passengers have historically been known to pay far more than other passengers. The average vacation traveler however, adds very little to an airline's bottom line through ticket sales. So is price discrimination the only sustainable pricing solution that airlines have? In my opinion, a single rate pricing model would be disastrous for the airline industry. If this were to happen, the ultimate loser would be the leisure/vacation traveler. This is due to the fact that their costs would have to rise significantly to offset the lost profits from first class and business travelers.
Posted by Michael at 11/01/2012 10:46:00 PM