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| Author: | Alves, C.F. Barbot, C. |
| Title: | Price discrimination strategies of low-cost carriers |
| Journal: | Journal of Transport Economics and Policy
2009 : SEP, VOL 43: 3, p. 345-364 |
| Index terms: | price discrimination pricing game theory market segmentation air transport airlines |
| Freeterms: | low-cost-carriers |
| Language: | eng |
| Abstract: | The low-cost carriers' (LCCs) pricing system is marked by a single class of booking that opens with a minimum fare and then monotonically increases its value over time. This is a form of price discrimination even though markets are not physically or temporally separate. Using game theory methods, this paper illustrates that this Lo-Hi (low first and later high) strategy is optimal under specific ranges of fare. The paper also shows that the existence of diverse probabilities of consuming the good and of diverse willingness to pay makes it possible to separate markets in time and to profitably execute price discrimination. |
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