Price Discrimination In The Airline Industry Analysis

Name: Reema Alsmari

ID Number: 13113747

Price Discrimination in The Airline Industry

Intermediate Microeconomics

Words count: 1646

Price discrimination involves sells and charging the same product or service to different consumers for different prices. The monopolist needs to use price discrimination to decrease the amount of consumer’s surplus and enhance more profits. Companies can charge different prices to different individuals not based on differences on the cost of production. It depends on several criteria.

Each consumer has difference elasticity of demand, which drives the strategy of price discrimination. The company charge high price for consumers with an inelastic demand. However, lower price are being charged from

This contract will benefit the large company’s employees by having a discount on each airline ticket. It is a price discrimination strategy, where different prices are charged for different consumers. The airline industry implies frequent flyers programs, which is very important in this particular industry. This program is a kind of price discrimination, because it consider as a kind of discount for specific customers. This program gives the advantage of any members of such a program to earn member points for each flight. This member points can be used to get a free

By doing this, the low quality ticket is now less attractive for group 1. The airline now can charge high price of the high quality ticket at Q = 10 and still be sure that passengers of group1 will buy it. As a result for this strategy, the consumer surplus for group 1 will be equal to area B. Not to mention, group 2’s consumer surplus will be equal to zero. The third class of price discrimination is Third degree PD. It is the action of charging a different price to different consumer groups. Time of use in the airline industry can be a perfect example of third degree PD. The monopolist in the airline company when practicing 3rd degree can differentiate between passengers. The airline company will have to deal with two groups of passengers. Passengers who buys tickets at peak time versus passengers who buys it at