Question

Megan and Susan are debating the pricing strategy of several airlines. Megan argues, "When airlines restrict discounted tickets to people who book well in advance and stay over on a Saturday, it is not price discrimination, because the restrictions have nothing to do with individual buyers' willingness to pay." However, Susan says, "The airlines' stay-over restrictions are a form of price discrimination, because they roughly split the market into two separate groups that are willing to pay two different amounts."

Answer 1

Susan idea is correct.

Step-by-step explanation:

• When airlines restrict discounted tickets to people who book well in advance and stay over on a Saturday, they are dividing people in two groups as mentioned by Susan: people who are willing to plan in advanced, from people who fly whenever they want. Lack of planification comes at a cost: you are not able to get a discount.
• This way, the company sets an incentive to users: if it is very important for you to travel, you will pay the ticket at its full price, while if you can pospone the trip (is not that important for you to travel), you may decide to pospone it and buy a ticket for the near future to get a discount.
• This way, your willingness to pay is related to the relative importance of the reason you are travelling for, and this is true for everyone. People are being discriminated by the immediacy of the reson their travel which is directly related to their willingness to pay, and this is a clear example of price discrimination.