Question

Airlines are doing better right now because of lower fuel prices, but it is still a highly competitive industry with narrow margins and low profit per passenger. Some airlines have extra charges of up to $50 for checked bags, some are charging for meals, and one has considered charging for access to bathrooms. One airline announced a plan to charge by the pound. Is this reasonable? Is it price discrimination?

Answer 1

Price discrimination occurs when producer charge different price from different customers for the product. Airline is charging this extra charge for bags, food, bathrooms from all consumers rather than from a specific segment of consumers. Thus, we cannot say that this is price discrimination. This is reasonable or not is dependent upon what other firms are doing. If only firm is charging for extra things, consumers will reduce its demand. Airlines is charging higher price for every extra thing you need because they know they consumers will pay for it and it will help in generating extra revenue. If consumers as a group reduce demand of airlines and raise voice against it, airline will have to cancel their new pricing structure.