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Price Discrimination In The Airline Industry

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Price discrimination happen when a producer charges different prices to different consumers for the same good or services. Price discrimination strategies can help a monopolist firm to maximize their profits. Price discrimination indicates charging different prices to different people, where the price differ without a reason that can be explained by the differences in cost. There are three types of prices discrimination:

First degree price discrimination is that charging each consumer the maximum price an individual is willing to pay for each unit of good or services.
Second degree price discrimination that is charging different prices depending on the quantity consumed.
Third degree price discrimination that is charging different prices for the same good or services for different groups of consumers.

In order for a firm to follow price discrimination strategy, the firm must have market power to be able to charge prices above marginal cost, and be able to divide the market passed on the price elasticity of demand. For example, If T-mobile or At&t charges elderly low prices each month to use their services, but they charge young people higher prices knowing that young people are using data and texting more than elder people.
Another example of price discrimination is in the airline industry because airlines can separate their customers based on their willingness to pay. The price discrimination strategy used by airlines is the third degree price discrimination because

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