Delta: Computer Glitch or Price Discrimination?

A current Executive MBA student sends a link to this article:  Delta Says Frequent Fliers Saw Different Fares

Nice find!

So maybe this is an unfortunate computer glitch on Delta's part, and maybe it's true that Delta Frequent Fliers were sometimes offered higher prices and sometimes lower.  Maybe.

But this is also perfectly consistent with a third-degree price discrimination strategy.  The rationale would go like this:  Delta knows that anonymous searchers are probably searching lots of airlines and comparing prices.  These travelers respond to low prices, which means their demand is elastic.  And as I discussed earlier today, it pays to offer lower prices when demand is more elastic.  Frequent flier club members are probably less likely to search widely and compare prices, and this means their demand is less elastic.  So Delta can increase profits by charging higher prices to this segment.

This is called "price discrimination" because the firm is charging different prices to different customers for the same product.  It's entirely legal --- although you can tell from Delta's response that it's often not a popular thing with customers --- and firms do it all the time.

(I do fly Delta a lot, and I hope they won't put me in the middle seat because of this blog post.)