Price discrimination airline pricing theory of 3rd degree price discrimination

Price discrimination airline pricing theory of 3rd degree price discrimination

This assignment is designed to show how the economic theory of 3rd-degree price discrimination is implemented in the airline industry and reflected in airline pricing. To obtain some limited price data, choose any city-pair and two competing airlines. A network and low-cost-carrier make an interesting comparison, but any airlines of interest are acceptable. For each airline, obtain the 4 prices for a typical round-trip itinerary with bookings 1 day in advance, and then for 1, 2 and 4 weeks in advance of the departure date. Itineraries with closer departure dates are more likely to be purchased by business travelers. Leisure travelers, on the other hand, usually book well in advance of the travel date.

To isolate the effects of advance purchase, the itineraries should depart and return the same days of the week at approximately the same times of day. Try to avoid the influence of holidays or other seasonal effects on demand. Use the airlines’ websites for all fare information.


In a short paper, first explain the theory of 3rd-degree price discrimination using a graphical model. Use the model to explain how the airline determines the price and quantity of seats for passengers traveling for business and leisure. Next, discuss how airlines actually practice price discrimination. Then, present your hypothesis, your specific expectation of what the price data will show as evidence of the practice of price discrimination. Follow this with your research methodology including the choice of airlines, the itinerary, class of service and fares, and sources of data. Then, present the data. A simple table or a graph may be the best method for showing the itineraries and fares. Finally, discuss whether the data provide evidence of price discrimination (because of small sample size, the data may be conflicting). Draw appropriate conclusions. An introduction should begin the paper with the conclusion demonstrating how the objective was met. Incidentally, this organization is typical of a research paper.

There is no page limit, but 3 to 4 pages not including the title page, reference page, and any appendices, should be sufficient. Incorporate the standard elements of APA style including running head, page numbers, section headings, citations, and references. 

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