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Just in terms of simple economics: Without price discrimination, there is one price, and then there are two triangles "left" of the price: What consumers would
by FabHK 1y ago
Just in terms of simple economics:
Without price discrimination, there is one price, and then there are two triangles "left" of the price: What consumers would have paid, but don't need to, that's the consumer surplus (between price and demand), and what producers would have sold for, but got more for, that's the producer surplus (between price and supply).
With price discrimination, what happens is that the producers "grab" some of that consumer surplus for themselves (as "price" is not a horizontal line anymore, but gets closer to the demand line).
So this is bad for consumers, good for producers. However, the producers can use the surplus to subsidize products for poorer consumers, so that a higher quantity of goods is sold.
Having said that, the airline market is very weird (oligopoly character, very perishable goods, ...)
- Uehreka 1y agoI don’t trust that any modern company would actually “use the surplus to subsidize products for poorer consumers”, that sounds like the kind of College Economics fact that isn’t actually true in the real world.
- dsr_ 1y agoIt's the sort of thing that a strong regulator can mandate, but generally doesn't; and the sort of thing that an airline would promote heavily, but not in a way that anyone could rely on: "We donate tickets to Charity X who uses them to fly very sick children to world-class hospitals! Why not donate your airmiles right now, relieving us of some of this obligation without getting the usual tax deduction!"
- wqaatwt 1y agoIt’s not so much “subsidizing” as maximizing revenue by charging as much as each individual consumer is willing to pay instead of a flat price. Albeit the outcome is very similar.
- mec31 1y agoThat’s not the way to look at it. The airline has a total cost hurdle for the flight to make sense. If they don’t cover that the flight doesn’t happen. So in a very real sense, your seatmate paying half what you are could be the difference between the flight going or not. As long as they are covering the direct costs of their flight (fuel, etc.) they are helping the flight take place at all. Since the assumption is the business travelers ‘really, really want that flight’ everyone benefits here.
- anticensor 1y agoEveryone knows airline transport is a service, not a good.