Problem 1: Flights to London Another example, this time a service. We looked at
ID: 1113284 • Letter: P
Question
Problem 1: Flights to London
Another example, this time a service. We looked at a flight from New York JFK Airport to London (Heathrow Airport) flying out on Saturday March 27, and returning on Monday March 29th, non-stop. We then got a comparison, the same service but flying out one week later (April 3) again for one week. Look at the results below:
Departing March 27, from JFK, and returning March 29th (Economy Class)
Carrier (Airline)
Price (including all taxes)
American Airlines
$648
British Airways
$924
Delta
$730
KLM
$730
Virgin Atlantic
$648
Departing April 3, returning April 5 (Economy Class)
Carrier (Airline)
Price (including all taxes)
American Airlines
$800
British Airways
$852
Delta
$893
KLM
$890
Describe the likely pricing strategy for an airline offering flights from London to New York.
What explanation can you offer for the differences in the prices quoted, both within the two tables and between them?
Carrier (Airline)
Price (including all taxes)
American Airlines
$648
British Airways
$924
Delta
$730
KLM
$730
Virgin Atlantic
$648
Explanation / Answer
This is second degree price discrimination . In this pricing strategy firm charge different prices during peak and off peak period.
As I told earlier different prices are charged between peak and off-peak period .
As we know airlines is an oligopoly market structure . In this market structure firms offer differentiated products and charge price above cost.