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Why you might have paid a higher airfare than the person next to you

Radio New Zealand logo Radio New Zealand 10/10/2018 Rob Nicholls, Senior lecturer in Business Law, University of South Wales

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Few things are more annoying than spending a large sum of money on a purchase, only to discover that someone else got the same thing for a lower price.

This often happens with airfares. You go the same website, search the same airline, choose the same seat row and fare conditions, but you are offered a different price depending on when and where you do it. Why?

Often it is a result of price discrimination. This happens when a seller charges you what you are willing to pay. Of course, it also needs to be at a level that the seller is willing to accept.

When it comes to airfares, there are two levels of price discrimination, both driven by algorithms. First, there is price discrimination by the airline. Airline pricing is typically dynamic. That is, the prices are higher for more popular flights. Then there are intermediary platforms, such as travel agents or price comparison websites, which can introduce a further level of price discrimination.

How it works

Websites create cookies that record interactions between a user and a website. Often there are other tags and beacons created. From these, the website provider can obtain information, such as the browser type and the kind of device being used. Flight sales providers use this information to determine the price offered to a customer.

For example, if the same user checks a website multiple times for a flight at a specific time and on a particular date, the provider might assume this is the only time and date the user is interested in. It might respond by increasing the price offered, since it knows the travel decision is made. Alternatively, it might reduce the price to lock in the customer.

Clearing cookies or using a search engine that does not share search history (such as Duck Duck Go) can reduce this effect.

Price discrimination is legal

In New Zealand, Australia and many other countries, price discrimination is legal. Sellers will typically pick an opening price based on the likelihood that someone will pay it. You see this happen at garage sales. Indeed, perfect price discrimination may mean that no two people pay the same price for the same product or service.

There are a few different ways of thinking about this.

In one sense, this is just how markets operate. If both buyers and sellers operate in a self-interested manner, efficient outcomes arise that are better for everyone - it is the "invisible hand". Of course, this does not prevent people from feeling ripped off.

The market can also provide intermediaries. Instead of paying the airline's asking price, you could get an intermediary to buy the fare for you at a lower price. After all, you might not mind paying more than the minimum price available, provided that it is less than you thought was reasonable to start off with. In airline searches, this is the type of service offered by businesses such as SkyScanner.

If you want to get a better deal on your airfare, the answer is to shop around. And using comparison services, clearing cookies from you browser cache, and leaving as few breadcrumbs as possible is likely to yield the best deals.

*Rob Nicholls does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond his academic appointment.


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