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Jodi Beggs

Fun with Price Discrimination, Airline Edition...

By March 18, 2013

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First-degree price discrimination is the practice of charging different prices to different customers based on information that the seller has about the customer's willingness to pay (i.e. the customer's reservation price) for the good. People often think that such price discrimination is illegal in the United States, but it's actually only prohibited in business-to-business markets because it's viewed as an anticompetitive practice rather than merely a way to transfer economic value (i.e. consumer surplus) from consumers to producers.

In case you ever forget this principle, you can remind yourself by noting that price discrimination is soon to be alive and well in the airline industry.

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