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

• A. Airlines charge different prices for the same flight based on factors such as booking time, customer type, and flexibility of the ticket.
• B. Airlines only offer discounts to frequent flyers and never to other customers.
• C. Airlines set a single price for all seats on a flight regardless of when or how tickets are purchased.
• D. Airlines base all ticket prices solely on the distance traveled, with no other considerations.

Answer: (A)

Verified step by step guidance

1. Understand the concept of price discrimination: it occurs when a seller charges different prices to different consumers for the same good or service, based on their willingness or ability to pay, rather than differences in cost.
2. Identify the key factors that allow airlines to practice price discrimination, such as booking time (early vs. last-minute), customer type (business vs. leisure travelers), and ticket flexibility (refundable vs. non-refundable).
3. Recognize that airlines do not charge a single uniform price for all seats; instead, they segment the market and adjust prices accordingly to maximize revenue.
4. Evaluate the given options by comparing them to the definition and characteristics of price discrimination, focusing on whether they reflect differentiated pricing strategies based on consumer characteristics or purchase conditions.
5. Conclude that the best explanation is the one stating that airlines charge different prices for the same flight based on factors like booking time, customer type, and ticket flexibility, as this aligns with the economic concept of price discrimination.