5 Pricing

Question 1

Price discrimination

Answer 1

different prices charged to different groups of consumers for an identical service, for reasons not entirely explained by costs

current airline service wouldn’t be possible without PD

different customer have different WTP –> PD increase you efficiency

Question 2

Condition to PD to exists

Answer 2

Group of consumer with different price elasticity 
no arbitrage (can't resell) 

both condition well met in the airline industry

Question 3

demand forecast

Answer 3

you need in order to make prices

RM need a demand forecast per booking class & flight departure

you do it with historical data

Question 4

Overbooking

Answer 4

you have to find a solution

First class Swiss not overbook

5-7% no shows

thank to overbooking swiss can transport 50’000 passenger a year (+0.4% Pax, +0.5% revenue)

If to many passenger show up:

• denied boarding compensation
• negative auction

Question 5

pricing at low cost carriers

Answer 5

no availability and fare rules, just a price!

there is not perfect segmentation.

bookings are continuously reduced by raising prices: dynamic pricing

Question 6

what price should I charge?

Answer 6

marginal revenues = opportunity costs (+ VK)

Question 7

bid price =

Answer 7

fare > = opp costs.

Question 8

development of Fares with Compeititon

Answer 8

in competition you would try to have lower prices that your competitor.

optimization must consider future demand, but future demand depends on future competitor fares. nash prediction –> equilibrium concept of came theory.