When are price differentials discriminatory?

Throughout the private sector it is commonplace for different buyers to pay different prices for products or services that appear identical in every respect. Many economists have concluded that such instances constitute an unmistakable signal of the presence of imperfections in the competitive process. Recent experience in the airline industry suggests, however, that much of the differential pricing we observe in the private sector is not discriminatory at all in the usual sense. In the airline industry and elsewhere, differential pricing may be interpreted as an efficient and fair response to the presence of important scale economies that traditional cost studies have failed to recognize. Traditional antitrust activities and even certain government programs to disseminate consumer information accordingly have the effect at times of reducing consumer welfare.