Eric and Kate are debating the pricing strategy of several airlines. Eric argues

Question

Eric and Kate are debating the pricing strategy of several airlines. Eric argues, "When airlines restrict discounted tickets to people who book well in advance and stay over on a Saturday, it is not price discrimination, because the restrictions have nothing to do with individual buyers' willingness to pay." However, Kate says, "The airlines' stay-over restrictions are a form of price discrimination, because they roughly split the market into two separate groups that are willing to pay two different amounts."

Economists generally agree with Eric or Kate?

Explanation / Answer

Economist's would generally agree with Kate as kate argument is correct as by using stay over on a Saturday restriction , Airlines are actually able to divide the market on the basis of there willingness to pay and is thus able to tap both th market.

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