The following research paper will discuss the 3rd-degree price discrimination model within the airline industry, the basic revenue management model used by airlines and further price discrimination techniques, as well as primary research involving data gathered from Delta & Southwest Airlines. The collected data will ultimately be used to show the relationship between time of departure and fare price.
Price Discrimination The 3rd-degree price discrimination model describes suppliers selling the same product to different customers for different prices. The discrimination evolves because of the ability of different consumer groups to purchase the product or service at different price levels. The following figure illustrates two demand curves. …show more content…
Therefore, the fares should decrease as the booking time before departure increases. The data is expected to show fares drastically higher 1 day before departure in contrast to 2 – 3 weeks before departure. For the reason, that airlines will want to maximize profit and increase prices to take full advantage of last-minute flight bookers (Prince & Baye, 9th Edition). Additionally, the fares for the network carrier should exceed the ones for the low-cost carrier at all data points. For the research, the round-trip between Saint Louis (MSP) and Fort Lauderdale (FLL) has been selected because this route should not reveal any abnormalities (main events, holidays etc.) and skew the data. Additionally, Southwest Airlines and Delta Airlines have chosen because of the fact that both airlines serve this route on a regular basis and will not charge any irregular prices. Since the research aimed to compare the data between those two airlines, one being a network and the other a low-cost carrier, the lowest fares for both airlines have been selected respectively. Lastly, all round-trips departure at around 6:00 a.m. – 7:30 a.m. on every Monday, starting the 19th of February until the 12th of March in one-week intervals and come back the next
Price Discrimination The 3rd-degree price discrimination model describes suppliers selling the same product to different customers for different prices. The discrimination evolves because of the ability of different consumer groups to purchase the product or service at different price levels. The following figure illustrates two demand curves. …show more content…
Therefore, the fares should decrease as the booking time before departure increases. The data is expected to show fares drastically higher 1 day before departure in contrast to 2 – 3 weeks before departure. For the reason, that airlines will want to maximize profit and increase prices to take full advantage of last-minute flight bookers (Prince & Baye, 9th Edition). Additionally, the fares for the network carrier should exceed the ones for the low-cost carrier at all data points. For the research, the round-trip between Saint Louis (MSP) and Fort Lauderdale (FLL) has been selected because this route should not reveal any abnormalities (main events, holidays etc.) and skew the data. Additionally, Southwest Airlines and Delta Airlines have chosen because of the fact that both airlines serve this route on a regular basis and will not charge any irregular prices. Since the research aimed to compare the data between those two airlines, one being a network and the other a low-cost carrier, the lowest fares for both airlines have been selected respectively. Lastly, all round-trips departure at around 6:00 a.m. – 7:30 a.m. on every Monday, starting the 19th of February until the 12th of March in one-week intervals and come back the next