Economics Price Discrimination Questions
There are several factors that influence price discrimination in the airline industry. These factors include:
1. Market segmentation: Airlines segment their market based on factors such as travel purpose (business or leisure), time of travel, and passenger preferences. This allows them to offer different prices to different segments of customers.
2. Price elasticity of demand: Airlines consider the price sensitivity of different customer segments. They charge higher prices to customers with less price sensitivity, such as business travelers who have less flexibility in their travel plans.
3. Time and seasonality: Airlines adjust their prices based on the time of travel and seasonality. They may charge higher prices during peak travel periods or holidays when demand is high, and lower prices during off-peak periods to attract more customers.
4. Route competition: The level of competition on a specific route affects price discrimination. Airlines may offer lower prices on routes with intense competition to attract more customers, while charging higher prices on routes with limited competition.
5. Ancillary services: Airlines often offer additional services such as baggage fees, seat selection, and in-flight meals. By charging different prices for these services, they can effectively practice price discrimination and generate additional revenue.
6. Customer loyalty programs: Airlines use loyalty programs to reward frequent flyers and encourage customer loyalty. These programs often offer discounted prices or exclusive benefits to loyal customers, allowing airlines to differentiate prices based on customer loyalty.
Overall, price discrimination in the airline industry is influenced by market segmentation, price elasticity of demand, time and seasonality, route competition, ancillary services, and customer loyalty programs.