Efficiency considerations in airline pricing and yield management

Abstract

Consumers and their advocates routinely criticize the practices of price discrimination and yield management. To date, the benefits to consumers of applying revenue management techniques have not been clearly identified. This research assesses airline revenue management techniques on the basis of economic efficiency. This paper demonstrates that a differentiated fare product structure with a range of price levels coupled with effective yield management techniques can provide airline seats to those consumers who value them most when demand exceeds supply. Efficiency in the allocation of limited airline seat inventories can be achieved in the current industry environment, making both society and airlines better off.