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Plane Ticket Pricing

I’ve been recently booking plane tickets and hoping to find the best price with as few stops and layovers as possible. Consequently, I became interested in how plane ticket pricing worked. Here is a resource I found online : http://www.johnlazarev.com/Lazarev_GML.pdf. I mostly focused on reading sections 1-3 because I can’t pretend to understand the later sections. Overall, the author of this paper discusses how airlines agree with each other to select from a discrete set of prices for each ticket instead of allowing for airplanes to raise or lower prices by an arbitrary amount such as 1 dollar. The author in this paper argues how this may be beneficial to all airlines as long as each party commits.

I see connections between this and market clearing prices. Here, the goal is to less about selling all tickets to consumers who place values on each ticket. Instead, the goal to maximize profit for the airlines. In this case, by independently coming up with a “menu” of prices and making this available to other airlines, the multiple parties can cooperate to maximize joint profit. In this case, the “price” of each ticket is not set to maximize the “social” good or to prevent one customer from receiving a bad deal, which is what we talked about in class. Instead the goal in to maximize profit for the airlines.

I have been thinking about how this would affect my actions as a customer. One thing I am interested in is whether there is a way to know the “menu” of prices airlines choose from. In this case, at least I can know how low prices can be set to. However, in many ways, there is very little an individual consumer can do to affect how airlines set prices. If anything we have to look at how much value we as an individual may place on each ticket and whether or not we are willing to fly out of different airports or spend longer times traveling.

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