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For airlines that operate on a traditional model (as opposed to low-cost carriers,) the biggest factor here is probably last-minute business travelers. In non-pandemic times, these represent an enormously outsized percentage of airline revenue. For example, this Investopedia article says that business travelers tend to account for about 12% of airline ...

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I think the other answers covered well why airlines don't usually do quite what Mankiw described. But everything I have read about airline pricing says they are acutely aware of marginal costs. Even if the discounted seats are sold well before the flight, it can be seen as charging less than otherwise desired to avoid ending up with an empty seat. The ...

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One theoretical flaw I don't think have been mentioned yet: The market clearing price is not the same as the revenue-maximizing price, if there is low competition. Suppose there are no other flights from A to B left at the last minute. Customers X, Y, Z are willing to pay \$500, \$200, \$100. Then the revenue-maximizing choice is to price the three seats at \... -2 It's a useful theoretical example illustrating the difference between fixed and marginal costs. And airlines totally do things like that--think of all the last minute 'discount' tickets sales. Airline tickets 'spoil' like fruit--after the flight date, they are useless. So an airline has every incentive to sell a ticket for every seat they can, regardless of ... 7 One problem with trying to price goods or services at their marginal cost is that customers may hold off on making immediate purchases of goods or services they expect to be available cheaper at a later time. If there aren't enough people who would have any interest in a particular flight to fill it even if tickets were only \$1 each, but the number of ...

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Pricing of last minute tickets for airlines is a tricky problem. Yes, discounting fares may attract customers who would not have flown otherwise. But buying a flight is a bit more complex than buying some gadget on discount on Amazon. Few customers can make such last-minute decisions. They usually need that flight, but also a flight back, and the schedules ...

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One possible answer is that Mankiw's argument takes consumer demand for airline tickets as fixed and given. I would speculate that cheap last-minute tickets are a substitute good for regularly priced tickets, and that if enough people came to prefer them, demand for regularly priced tickets would fall and the airlines would lose revenue. In other words, ...

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Do airlines actually do anything like the above? Yes, in fact now you will see on many airports specialized companies/windows that will offer last-minute flights very cheap. For example, in the past, I used to frequently fly to Vienna Schwechat airport, and there used to be a window where you could get cheap tourist flight but the catch was you could not ...

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