Third Degree Of Discrimination In Airlines Case Study

Third Degree of Discrimination in Airlines
The theory of third-degree discrimination occurs when a seller divides the buyers into different groups and charges each of these groups different prices on the same goods. This kind of segmentation is linked to a group's elasticity of demand. This theory has been widely applied in the market such as in airlines, liquor stores, discounts for students, and senior citizens (Cowan, 2016).
For third-degree price discrimination to be feasible, the total output from all the groups should be equal. To understand the third-degree price discrimination, the following graphical model is used. Figure 1: A graphical model of price versus quantity with marginal revenue and demand curves showing an a) elastic and

This itinerary represents one of the longest flights in the U.S., and hence likely to result in price competition. Initial research revealed that the two most common airlines on the route are Delta Airlines and American Airlines. Both are network carriers and have user-friendly online booking platforms for price comparison. Additionally, both networks are among the most popular in the United States and compete in the same market segments. As a result, there are some price differences which the data will show. Both Delta Airlines and American Airlines offer high-quality services and charge higher fares due to their brand status and reputation. Additionally, during the collection of data, the profile of an average business passenger itinerary that used flights regularly was posed. As a result, the price was critical, and the cheapest flight (non-business and non-economic class) was chosen on the

Both airlines realize that the consumer segment which books earliest is mostly looking for lower prices and hence offer lower fares to meet the demand of consumers. On the other hand, consumers who book flights as less as one day in advance are more willing to pay higher prices, and hence airlines raise their prices. As a result, booking a flight early can result in passengers paying less than half of the cost of a return ticket. However, from the airline's perspective, price discrimination can result in profit maximization and economies of scale, which is necessary to be competitive. Accordingly, the results prove the hypothesis that airlines practice the third degree of