Which of the following best explains how airlines practice price discrimination?

• A. Airlines only offer discounts to frequent flyers and never to other customers.
• B. Airlines charge different prices for the same flight based on factors such as booking time, customer type, and flexibility of the ticket.
• C. Airlines base all ticket prices solely on the distance traveled, without considering other factors.
• D. Airlines set a single price for all seats on a flight regardless of when or how tickets are purchased.

Answer: (B)

Verified step by step guidance

1. Understand the concept of price discrimination: it occurs when a seller charges different prices to different customers for the same product or service, based on their willingness or ability to pay, rather than differences in cost.
2. Identify the key characteristics of price discrimination in the airline industry, such as varying prices depending on booking time, customer type (e.g., frequent flyers vs. occasional travelers), and ticket flexibility (refundable vs. non-refundable).
3. Analyze each option to see if it reflects these characteristics: for example, offering discounts only to frequent flyers is a form of price discrimination but is too narrow to fully explain airline pricing strategies.
4. Recognize that charging different prices for the same flight based on multiple factors (booking time, customer type, ticket flexibility) aligns with the definition of price discrimination because it segments customers and extracts different willingness to pay.
5. Conclude that the best explanation is the option describing airlines charging different prices for the same flight based on these factors, as it captures the broader and more accurate practice of price discrimination in the airline industry.