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Diagrammatic Approach to Capacity-Constrained Price Discrimination

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Author Info

  • William S. Reece
  • Russell S. Sobel

Abstract

This paper presents a diagrammatic solution to the firm’s profit-maximizing price discrimination problem in the face of capacity constraints. Airlines, hotels, and other firms practice yield management, allocating fixed capacity to customer groups paying different prices. In these cases, the firm’s short-run problem is not a decision about production levels, but it is one of allocating a fixed number of output units among customers. Our diagram shows that the conditions for profit-maximizing price discrimination are very different under these circumstances than in the standard model in which the firm is not constrained by capacity.

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Bibliographic Info

Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 66 (2000)
Issue (Month): 4 (April)
Pages: 1001-1008

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Handle: RePEc:sej:ancoec:v:66:4:y:2000:p:1001-1008

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Web page: http://www.southerneconomic.org/
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Cited by:
  1. Edward Lopez & David Molina, 2010. "Third-Degree Price Discrimination: Apology Not Necessary," Atlantic Economic Journal, International Atlantic Economic Society, vol. 38(4), pages 383-397, December.
  2. Anne-Christine Barthel, 2013. "Extending The Scope Of Monotone Comparative Statics Results," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201305, University of Kansas, Department of Economics, revised May 2013.
  3. Mark Lijesen & Peter Nijkamp & Eric Pels, 2005. "The Home Carrier Advantage in Civil Aviation," Tinbergen Institute Discussion Papers 05-011/3, Tinbergen Institute.

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