question archive Your firm resells airline tickets during the busy summer travel season
Your firm resells airline tickets during the busy summer travel season
Subject:EconomicsPrice:2.88 Bought3
Your firm resells airline tickets during the busy summer travel season. Your manager argues that the firm should charge, for the same flight route, a single price. This approach, your manager argues, would simplify pricing and lower administrative overhead. Another manager argues that the firm should increase prices for those who purchase close to the date of travel, and lower prices for those who book two weeks ahead of travel. Both turn to you and ask, "who is right?" Provide your answer and explanation for your answer.
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The second manager is correct. People who buy close to the date of travel are either business travelers or travelers that have to be somewhere for something that suddenly came up. Either way, they likely have relatively inelastic demand. Conversely, people who buy more than two weeks ahead are more likely to be pleasure travelers and have more elastic demand. To maximize profit, it makes sense to charge higher prices to those with inelastic demand and lower prices to those with elastic demand.
