[bsmithers]

I find it odd that they refer to this as dynamic pricing. I know someone in this industry and they've been doing 'dynamic pricing' for decades - specifically pricing for expected and actual demand.

I suspect they've deliberately avoided the more contentious-sounding 'personalised pricing'.

[gshulegaard]

I'm pretty sure both of those labels are avoiding calling it what Economists refer to it as: Price Discrimination.

[sokoloff]

Price Discrimination, done well, can be beneficial for market participants on both the buy and sell side.

Businessperson who needs to go somewhere to close a deal? Flight on a very specific day/time on short notice might be worth $5K+ to the company.

Grandma coming to visit the grandkids on "oh, anytime in March or April" might only be able to allocate $300 to the flight.

Businessperson gets to fly where/when they need to go for only $3K. Grandma gets to see the grandkids on a $250 ticket with a lot of restrictions that don't bother her. If everyone had to pay $1.5K for the tickets, it's possible that the airline wouldn't sell enough seats to fly the route at all.

[gshulegaard]

Price Discrimination is inherently beneficial to producers since it maximizes producer surplus.

In theory, Perfect Price Discrimination is also beneficial to sub-equilibrium market consumers since they can access goods at prices they can afford. But at the same time it is proportionally harmful to consumers above equilibrium as they start paying more for goods that unaltered equilibrium would have ordinarily priced lower (decreasing their surplus). It's unclear that given the opportunity firms would perfectly price discriminate below market equilibrium at all since it's unclear if the incentive structure would make it beneficial to do so.

And as a whole, to the best of my rudimentary knowledge, it's unclear as to whether or not Perfect Price Discrimination, with the reduction in consumer surplus as a result, would be beneficial to the economy as a whole. A simplistic conservative view would be that Price Discrimination prices goods based on what you can "afford" and therefore lowers prices. An equally simplistic liberal view would be that it's companies taking money from consumers. Neither of which are complete pictures...but factually Price Discrimination is a firm strategy that is a result of non-competitive markets. Generally speaking, non-competitive firm strategies disproportionately favor the firm over consumers.

[sokoloff]

Would you agree that the domestic airline industry is reasonably competitive on the whole? Sure, there are limited gates and slots at some airports, and not every Smalltown USA is served by multiple carriers, but if I wanted to start an airline this year, I could. (I don't, because I'd rather have money... ;) )

[gshulegaard]

The domestic airline industry is one of the most flaunted examples of a non-competitive, stagnate industry. High barriers to entry, heavy regulations, limited supply chains are all factors that limit competition. It's problems are frequently written about:

* https://www.economist.com/news/leaders/21721201-americans-ar...

* http://www.latimes.com/business/la-fi-airlines-invest-in-for...

* https://www.bloomberg.com/news/articles/2018-02-26/american-...

* https://www.economist.com/blogs/gulliver/2018/01/stretched-b...

* https://www.mckinsey.com/industries/travel-transport-and-log...

Competition isn't a binary thing where either a market is competitive or it isn't, but rather a gradient scale. The airline industry is one of the least competitive industries, especially in the US (my frame of reference), even if it isn't completely without competition.

[sokoloff]

Thanks for the links. I read through them and agree that competition isn't a binary thing. Those articles read to me more like "the airline business is a shitty business to be in because it's too competitive" rather than "the airline business is a great business to own because it's not very competitive"

This quote seemed to summarize my point of view overall:

> Airlines in North America posted a profit of $22.40 per passenger last year; in Europe the figure was $7.84.

$22.40 per pax looks to be about a 6% margin (avg US domestic RT fare of $354 in 2017). 6% is not quite the bloody competition of grocers (sub 2%), but it's a pretty damned slim profit margin for such a capital and labor intensive business and not anyplace I'd want to put my investment (of time or money) to seek profit.

It wouldn't surprise me if the European carriers had a similar profit margin on their lower priced tickets. I couldn't readily conjure up an estimate of average RT intra-Europe airfares on Google.