Price discrimination is charging different prices from different set of consumers for same goods. For airline an company the seats in a plane is the inventory. The airline companies are one of the biggest discriminators based on price. The companies use different criteria for this sort of discrimination such as:
1. Based on quantity bought.
2. Based on time of use.
3. Based on age profile.
4. Based on when is it bought.
The airline companies charge different prices from customers who are different in age, the companies may also offer discounts when tickets are bought in certain numbers this type of discrimination seems to be normal. On the other hand companies may also ask for different prices based on when the ticket is bought also the time of use of the service. The principle behind this discrimination is that the companies are using different price elasticities. but then seats are the same they are not different. The companies may offer lower priced tickets for unsocial hours, companies may also choose to charge for extras. Another type of price discrimination can be seen when people are charged differently on same routs but with different ending and starting points. For example an airline company may charge double the price for London- Melbourne return flight in comparison to Melbourne-London return flight. One may argue that the seats are the same but trhe service is different. Here company uses third degree of price discrimination.
Type of discrimination:
- First degree: Charging the highest price which an individual consumer is willing to buy.
- Second degree: charging prices based on quantity consumed.
- Third degree: charging different prices from different groups of people.
- Forth degree: price paid is same but, firm may incur different costs.
This sort of price discrimination is quiet prevalent in airline industry and almost all companies use it for their benefits arguing that they make use of the different price elasticities. The companies may also try to take advantage of the price sensitivity of different type of consumers.
WHAT DO YOU THINK IS IT FAIR ON THE PART OF THE AIRLINES TO FOLLOW PRICE DISCRIMINATION?