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Essay / Research Paper Abstract
This 3-page paper discusses the advantages and disadvantages of dynamic pricing as it pertains to the airline industry. Bibliography lists 1 source.
Page Count:
3 pages (~225 words per page)
File: D0_MTdynapric.rtf
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Unformatted sample text from the term paper:
opposite of supply and demand pricing, in which prices go down as demand does, as well as vice versa. In this paper, well examine how a standard airline uses dynamic
pricing, and what the advantages and disadvantages of such pricing structures are. Most airline companies use dynamic pricing as a way to
put more bodies into seats. Its not uncommon, for example, for one-way fares to exceed round-drop prices, while the price differences between refundable and non-refundable tickets are huge (McAfee and
te Velda, 2001). In any given airline flight, coach seats can range anywhere from a couple of hundred dollars to leisure travelers who booked months in advance, to more than
$1,000 to the businessman who booked at the last minute. In the airline industry, dynamic pricing is at its best use
when two characteristics co-exist. First, the product (i.e., airline seats) needs to expire at a particular point in time (McAfee and te Velda, 2001). Second, capacity needs to be fixed
in advance, and changed or increased only at a high marginal cost (McAfee and te Velda, 2001). Both situations are in effect in the airline industry - there is certainly
a date of expiration for the seats (once the airline flies, if a seat is empty, it stays empty). Furthermore, capacity is fixed in advance. One cant change a 600-seat
airplane into an 800-seat airplane. If more demand is on that route, then an extra carrier needs to be added, which would significantly increase costs.
Many times, however, airlines will turn to other sources to sell unsold seats, particularly at the last minute. Sites such as Orbitz and Priceline fall into this
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