onsider three different flights: A Monday morning flight from Chicago (ORD) to N

Question

onsider three different flights: A Monday morning flight from Chicago (ORD) to New York (LGA) with very high demand by business passengers; a mid-morning flight from St. Louis (STL) to LAX with moderate demand from both business and leisure passengers; and a regional jet flight from Columbia, S.C (CAE) to Atlanta (ATL) with connections to all major cities on mainline jets (the RJ has cost per available seat mile twice that of mainline jets). The three applicable pricing models are peak pricing, 3rd degree price discriminationd cross subsidization.

Choose one flight and explain how one of the models applies to pricing. Remember to respond to at least two of your peers' postings. This is a graded activity due on the last day of the module. Review the Discussion Rubric to find out how to maximize your grade.

Explanation / Answer

1st flight from Chicago to New York is highly demanded by business passengers.This inplies that they would be willing to pay very high prices for the flight.Hence flights are able to segment consumers based on demand elasticities.Business class with high demand would not change their demand by a large amount even if prices charged to them are very high.Thus 3rd degree price discrimination can be easily practiced in such situation.

2nd flight facing moderate demand from both business and leisure passengers could opt for cross subsidisation.This is because both of them value it equally however amount that each one can pay for the ticket is different.Thus flight can cater to both classes through cross subsidisation.

3rd flight faces a higher MC curve than mainline jets.Hence it should practice peak load pricing.Under peak load pricing firms charge a higher price during peak hours as then the MC is also high.

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