Airline Pricing Research Assignment Case

The first point to be addressed by this paper is the concept of price discrimination. First, price discrimination is the act engaged by a seller in which different prices are charged to different buyers for the same good. Such practice can only be engaged by sellers that have market power. In fact, in the case of perfect competition, where firms do not have market power, firms sell homogeneous products, at the same price for all buyers. A firm or seller can engage in price discrimination if it has market power, especially if in the case of monopolies, but it is not necessary for a firm to be a monopoly to engage in price discrimination.

There are three main types of price discrimination. In the concrete case of the airline industry, the most common type of price discrimination used is what is called third-degree price discrimination, in which (1) a firm identifies two (or more) groups of consumers with different demand curves, or equivalently, with different elasticities of demand (which means that each group would react differently to price changes) and (2) the consumers are segmented by groups, which means that consumers from one group cannot buy the good from consumers from the other group).

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