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Pros And Cons Of Price Discrimination In India

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PRICE DISCRIMINATION IN AIRLINE INDUSTRY

Price Discrimination meaning – Price discrimination involves charging different prices to different sets of consumers for the same good.

Demand and supply graph due to Price discrimination.

price

14

7

40 100 Quantity demanded

Basis of Price Discrimination –
¬ Quantity bought (e.g. lower unit price when higher quantity is bought)
¬ Time of use (higher price at peak times)
¬ Age profile (e.g. discounts for OAPs)
¬ When unit is bought (e.g. discounts for buying early)

Price Discrimination due to elasticity – The firm uses different price elasticity of demand to discriminate prices. Some people have very inelastic demand and they’re ready …show more content…

b.) Separate markets - The firm must be able to separate markets and prevent resale. E.g. stopping an adults using a child’s ticket. Prevent business travelers buying discount tickets.
c.) Different elasticity of demand - Different consumer groups must have elasticity of demand. E.g. students with low income will be more price elastic and sensitive to price. Business travelers will have more inelastic demand.
d.) Low admin costs - It must be relatively cheap to separate markets and implement price discrimination.

Does Price Discrimination increase Revenue for Airlines? The marginal cost of an additional passenger is relatively low. Most of the costs include fixed costs, if you have 1 passenger you’ll have to pay all these fixed costs such as wages, fuel, landing charge ETC. Therefore, to maximize revenue the airline will have to sell all tickets. Most airlines invest a lot of money so they need maximum surplus and to get that they charge more if the seats are not sold. The airlines tempt the consumer by charging low, for example – spice jet came up with a base fare of just rs. 499 but when the customer purchased the ticket he had to pay a lot of extra money for food , seat preference ,check in baggage …show more content…

Importance of marginal cost in price discrimination –

In markets where the marginal cost of an additional traveler is low, the firm has an impetus to utilize value segregation and increase the price to sell all its tickets. This is the reason now and then costs for aircrafts can be low just before their date. Once the company is due to fly the MC of an extra passenger will be very low. Therefore, this justifies selling the remaining tickets at a low price.

Suggestions to improve the situation –

From the above information it is clear the consumers suffer a lot due to the price discrimination followed by the airline industry. Government should imply some rules and regulations on this issue of price discrimination. Government should use Price ceiling so that the consumer’s welfare is also taken into consideration. The graph shows us how government can use price floor to help consumers and fix a price which fulfils the surplus demand of the

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