Counterintuitive Facts (30): Why Is the Seat Next to You Half the Price of Your Ticket?

I. The plane takes off. You paid $2000 for your ticket. The person next to you who paid $800 for a discounted ticket enjoys exactly the same service. You feel unbalanced: this is so unfair. But in the merchant's eyes, this is the fairest thing. This is called Price Discrimination.

II. Merchants' logic goes like this: If tickets are uniformly priced at $800, you who was willing to pay $2000 now pays $1200 less (this is called Consumer Surplus). Merchant feels cheated. If tickets are uniformly priced at $2000, the person who can only afford $800 won't fly, empty seats are also a waste. Merchant also loses.

III. The perfect strategy is: Charge based on who you are. You're rich, you need to travel for business urgently, you're not price sensitive? Then charge you $2000.