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September 11, 2020

Once a plane has taken off for its destination, any seat not

Once a plane has taken off for its destination, any seat not sold on that flight will never be sold. In addition, the marginal cost of flying one additional passenger is low. This gives airlines an incentive to manage prices so that as many seats as possible are filled on each flight. Airlines will maximize their profits by charging business travelers higher prices than leisure travelers, but airlines need to determine who is a business traveler and who is a leisure traveler. Some airlines identify business travelers by requiring people who buy at the leisure price to buy 14 days in advance and stay at their destination over a Saturday night. Anyone unable to meet these requirements must pay a much higher price. The airlines also use computer models to calculate a suggested price each day for each seat. The practice of continually adjusting prices to take into account fluctuations in demand is called yield management. Would you adopt the same practice in an airline that you owned? Provide an explanation to support your argument. Can you provide an example of another industry that practices price discrimination?Word count: 400

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