price discrimination in the airline industry - Fagbokforlaget

in the airline industry versioning is of importance also in a competitive setting, so thatprice discrimination is viable in this particular industry even in a competitive setting.To illustrate how competition may affect the degree of versioning, let us extendthe setting we discussed above. Let us assume that competition leads to more availablecapacity. To avoid idle capacity, the firms can respond in different ways. One way is tolower prices. Another way would be to extend the sale of the damaged product. In theairline industry, the latter would imply that the firms increase the number of restrictedtickets or that each restrictive ticket becomes less restrictive. To illustrate the effects ofthis, let us distinguish between the business segment and the leisure segment. The effectof a shift from monopoly to competition in the leisure segment is illustrated in Figure 3.Figure 3 The effect in the leisure segment of competitionPriceDemandMONP LDUOP LMONX LDUOX LQuantityIn Figure 3 we have illustrated the effect of lower prices, see the arrow shown on thevertical axis. In addition, we have illustrated the effect of less severe product damaging ora larger number of damaged products by the outward shift in the demand curve. Firmscompete on low quality products, both by lowering the price on such a good andincreasing the number of damaged products or reducing the product damaging on such© Steen and Sørgard 10