Price Discrimination in Airline Fares Several years ago Northwest Airlines cut fares 35 percent for summer travel.
Question:
Price Discrimination in Airline Fares Several years ago Northwest Airlines cut fares 35 percent for summer travel. There were some restrictions:
Travel must begin on or after May 27 and be completed by September 15.
The nonrefundable tickets require 14-day advance purchase.
Travelers must stay at their destination over a Saturday night.
People taking a plane trip for a vacation usually can plan their trip far in advance and don’t mind spending a weekend at their vacation destination. Business travelers, on the other hand, frequently have to travel without much advance notice and want to be back home on weekends.
1. The main customers for Northwest’s discounted tickets will be (business, vacation) travelers.
2. Does Northwest think the demand for airline tickets for vacation travel is elastic, inelastic, or unit elastic? Explain your answer.
3. Based on the restrictions it sets and the effects of those restrictions on business and vacation travelers, Northwest must think that (business, vacation) travelers have a higher price elasticity of demand.
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