Question

Consider the following two price discrimination situations.

I.) It is very common for passengers on the same flight to have paid very different amounts for their airline tickets, even though they are all traveling on the same exact route at the same exact time.

(a) How do airlines segment the market – in other words, how do they decide whom to charge more vs. less? Explain using economic terminology!

(b) Preventing resale is an important condition of making any price discrimination scheme work. How do airlines handle this?

II.) Movie theaters are able to charge less for afternoon tickets than for evening showings. How do they use time of day to separate market segments by demand elasticity?

Answer 1

1. Airlines segment market based in economy and business class and offer different level of services and experience to both types of customer by charging differently
2. Preventing resale is done by stamping and accreditations of gate pass which cannot be redone so resale doesn't happen using black marketing techniques
3. Movie shows use demand elasticity like when demand is higher in evening charges are higher as occupancy rate is high and vice versa in afternoon show with low rates low occupancy to ensure higher volume of audiences all time and maximisation of revenues.

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