Third Degree Price Discrimination in the Airline Industry

Running head: ECONOMICS ASSIGNMENT 1
Aviation Advanced Economics
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1ECONOMICS
Introduction
Third degree price Discrimination entails charging prices differently in various market
segments for similar services or products. In other words the theory of third degree price
discrimination has a direct link to the overall ability and willingness for the consumers to pay
for a particular service or goods. Under third degree price discrimination the cost of
production have limited relationship with the total price charged on the customers for a
particular service (Czerny and Zhang,2015).
From the graph below, price (Pa) is charged in the peak market and production takes place
at a point where MRa = MC (Berry and Jia, 2010).
Also, price Pb is charged in the off the peak market and production takes place at a point
where MRb = MC. It is important to note that a relatively high price level (Pa) is charged on
consumers that are inelastic in demand and those are elastic in demand are charged Pb due
to the high level of responsiveness.
Figure1 explaining third degree price discrimination (Berry and Jia, 2010).

2ECONOMICS