Price Discrimination Strategies of Low-cost Carriers
AbstractThe low-cost carriers' (LCCs) pricing system is characterised by a single class of booking that starts with a minimum fare and then monotonically increases its value over time. This is a form of price discrimination although markets are not physically or temporally separate. Using game theory techniques, this paper shows that this Lo-Hi (low first and later high) strategy is optimal under certain ranges of fare. The paper also finds that the existence of different probabilities of consuming the good and of different willingness to pay makes it possible to separate markets in time and to profitably price discriminate. ? 2009 LSE and the University of Bath
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Bibliographic InfoArticle provided by London School of Economics and University of Bath in its journal Journal of Transport Economics and Policy (JTEP).
Volume (Year): 43 (2009)
Issue (Month): 3 (September)
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Web page: http://www.bath.ac.uk/e-journals/jtep
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- Budd, Lucy & Francis, Graham & Humphreys, Ian & Ison, Stephen, 2014. "Grounded: Characterising the market exit of European low cost airlines," Journal of Air Transport Management, Elsevier, vol. 34(C), pages 78-85.
- Angela Stefania Bergantino & Capozza, Claudia, 2012.
"Airline Pricing Behaviour Under Limited Intermodal Competition,"
1206, SIET Società Italiana di Economia dei Trasporti e della Logistica, revised 2012.
- Bergantino, Angela Stefania & Capozza, Claudia, 2013. "Airline Pricing Behaviour under Limited Intermodal Competition," MPRA Paper 48892, University Library of Munich, Germany, revised 27 Nov 2013.
- Elwakil, Omar S. & Dresner, Martin, 2013. "Low-cost carriers and Canadian traffic generation at US border airports," Journal of Air Transport Management, Elsevier, vol. 33(C), pages 68-72.
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