As a staff member for the Transportation Department, you must prepare a detailed report about the airline pricing strategy to be presented by the Secretary of Transportation to the US Senate Special Committee. The report must also present a recommended course of action for the US Senate based on your findings and understanding of the economic concept of 3rd degree price discrimination. This report must address the following: Explain 3rd-degree price discrimination. Provide proof that the airline industry engages in 3rd- degree price discrimination. Provide an example of another industry that engages in this type of price discrimination. Determine whether this business practice is ethical and make a recommendation to the US Senate based on your findings. Upon completion of this assignment, you should be able to: Explain how firms use price discrimination to maximize profit by using key terms such as elasticity of demand, willingness to pay, and consumer surplus. Draw a supply and demand curve that demonstrates the use of price discrimination to maximize profits. Identify industries that engage in price discrimination.
Explain why the use of price discrimination is ethical or unethical WRITING THE PAPER: THIS SHOULD BE ADDRESSED IN THE BODY OF THE PAPER…
Step 1: Explain 3rd- degree price discrimination: Explain 3rd-degree price discrimination and explain what criteria must be meet for a firm to engage in this pricing strategy. Explain how 3rd- degree price discrimination maximizes a firms profit. Explanation must include key concepts such as elasticity of demand, willingness to pay, and consumer surplus. Include a graph to help explain the role of 3rd-degree price discrimination in maximizing a firms profits.
Step 2: Investigate airline industry prices:Investigate airline industry prices to determine if they are engaging in 3rd- degree price discrimination. To do this, you will need to… Obtain some price data, choose any city-pair and two competing airlines. For each airline, obtain four prices for a typical round-trip, itinerary with bookings one day in advance, and then for 1,2, and 4 weeks in advance of the departure date. Itineraries should depart and return the same days of the week at approximately the same time of the day. Try to avoid the influence of holidays or other seasonal effects on demand. Use the airlines websites for all fare information ***Important Note: Itineraries with closer departure dates are more likely to be purchased by business travelers, leisure travelers on the other hand, usually book well in advance of their travel date.
Step 3: Present, explain and make a conclusion about airline pricing dataPresent airline itineraries and fares in a simple table.Discuss your research methodology including the choice of airlines, the itinerary, and source data. Source data refers to the source you used to obtain your data. Explain why you choose to use that particular source. Based on the data collected present an appropriate conclusion about the use of 3rd- degree price discrimination in the airline industry. If data provides proof that the airline industry engages in 3rd- degree price discrimination, explain how they are able to implement this pricing strategy.
Step 4: Investigate to determine if there are other industries that engage in 3rd- degree price discrimination. This will be accomplished by… Selecting another industry that you believe uses 3rd-degree price discrimination. Provide an accurate amount of price-data to offer proof that the industry you have selected uses price discrimination. Present pricing data from this industry in a simple tableProvide information about the source for which you obtained your data. Explain why you selected the source for which you obtained your data.Explain how your data demonstrates 3rd-degree price discrimination. If data proves that the industry engages in 3rd- degree price discrimination, explain how they are able to implement this pricing strategy
Step 5: Make a recommendation and defend. Based on your research make a recommendation to the US Senate Special Committee that addresses the ethics of 3rd- degree price discrimination. Recommendation should address the following… Is this price strategy a fair and ethical business practice? Should Congress continue to allow businesses to engage in this practice? Or should Congress create a law to ban this practice. Defend and explain your recommendation with sound arguments. Sound arguments should include an explanation of how 3rd- degree price discrimination benefits or harms consumers at large