Airline Auctions
Every person has a willingness to pay for an item and if markets are able to price discriminate these groups and charge people with more demand more for the item, they can maximize their profit, but not the buyer’s welfare. In class, we spoke mainly about the equilibrium that maximizes the buyer’s welfare, but we can also flip this and look at the seller’s welfare.
There is a proliferation of digital data recording people’s willingness to pay as well as their demographics and other spending habits. With this data, able to estimate the value of unsold items, including and most notably airline tickets. Flights that have a lot of click activity are assumed to have higher demand and therefore a higher market-clearing price. There is a known (or assumed) value calculated from the data and that is used to assign prices. In the same way that Facebook and Google are able to price discriminate and charge a higher price to buyers with higher demand, airline are able to price discriminate against different categories are fliers.
Airlines are not doing as well as they could be with these auctions. Empty seats on flights are valued at $120 billion dollars annually. A startup called BidFlyer plans to take advantage of this market by auctioning off predicted unsold seats. The system will be a first priced auction that still offers a discount to the buyer.
http://www.globes.co.il/en/article-bidflyer-teams-with-el-al-to-auction-unfilled-seats-1001154797