Price Discrimination Strategies of Low Cost Carriers
Carlos F. Alves
University of Porto - Faculty of Economics
University of Porto
Journal of Transport Economics and Policy, Forthcoming
Low cost carriers' (LCCs) pricing system is characterized 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 discriminating prices although markets are not physically or temporal separated. Using game theory techniques, this paper shows that this Lo-Hi (low first and later high) strategy is optimal under certain ranges of fares. The paper also finds that the existence of different probabilities of consuming the good and of different willingness to pay makes possible to separate markets in time and profitably discriminate prices.
Keywords: Pricing Strategy, Low Cost Carriers, Internet Sales, Game Theory
JEL Classification: C79, D21, D49, L93Accepted Paper Series
Date posted: May 25, 2008
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