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I'm very surprised that the airline execs actually thought this would help revenue. The demand for travel is extremely elastic, therefore any increase in the c
by chrisgoodrich 17y ago
I'm very surprised that the airline execs actually thought this would help revenue. The demand for travel is extremely elastic, therefore any increase in the costs of travel is going to cause a decrease in demand.
- Zak 17y agoDemand, in economics is represented as a graph of purchases versus price. By definition, a change in price does not change demand; it simply represents a different point on the demand curve. What does change demand is customer perception that they're being ripped off. A $515 ticket and a $500 ticket are fairly close on the demand curve and probably don't represent a huge difference in sales. A $500 ticket plus a $15 checked bag fee is perceived by the customer as an attempt to conceal the true cost of the ticket.
- chrisgoodrich 17y agoYes, I should have been more thorough in proofing my post. Demand doesn't change because of elasticity; the quantity demanded changes. If calculated, they may not have been able to see the full effect of this change as the calculations (like you state) do not take into account customer perception. Although not seemingly a large change, the $15 change in price can make a huge impact in such highly elastic markets.