Price discrimination in an airline market with uncertain demand

Abstract: This project examines how a monopoly can utilise differences in the uncertainty of individual demand to discriminate between consumers. The starting point is the varying prices seen when purchasing tickets with easyJet on route they operate between Kastrup and Stansted. Two theories, advance-purchase discounts and vertical product differentiation, are presented and discussed from the airline’s position. The empirical study analyses easyJet’s pricing and willingness to pay of consumers based upon raw data. We found statistical evidence that the airline discriminates between consumers based on geographical origin and time of travel whilst utilising advance purchase discounts. In addition the willingness to pay for a ticket is lower far in advance of departure and consumers are willing to pay a larger mark-up for flexibility far in advance.