PRICE DISCRIMINATION

By Group V Nikhil Khakhkhar Sachin Pandey Sukesh Chandra

Overview
Price Discrimination is used in industry to maximize profit. We have Analysed Price Discrimination across Airline Industry & Movie Theatre For Aviation sector there are many methods to see price discrimination Our Research paper involved the method of cross price elasticity.

AIRLINE INDUSTRY
Airline Industry use 2nd & 3rd order Price discrimination. By 2nd Degree Price discrimination they charge higher for business class ticket. By 3rd Degree Price Discrimination they have different price for different consumer for same seat. We have analyzed Indigo Air fare with their corresponding demand

AIRLINE INDUSTRY
Price discrimination models assume that when a consumer chooses to purchase a lower priced fare product they do so at no additional cost. If the lower priced fare product requires a purchase of 14 days in advance or any other restrictions applied to a discount purchase, which would not have been encountered by a higher priced fare product, the assumption states that there is no cost to the consumer for accepting more restrictions.

AIRLINE INDUSTRY
Our research shows that while Airline is using pricing discrimination for early birds, say 14 days advance or 7 days advance or regular booking. The demands for all the 3 type of tickets are related on the price of other three tickets.

AIRLINE INDUSTRY
We have considered the following model to Qj = B1.P1 + B2.P2 + B3.P3, where J=1,2,3 Here, QJ is demand for three different priced ticket 14 days advance, 7 days advance & regular. B1, B2,B3 are coefficients & P1,P2,P3 different price

AIRLINE INDUSTRY
To see whether the Consumer Demand is just based on one price or all discriminated price, we have done regression considering all 3 price , & considering the price corresponding to only specific demand.

Route Chennai-Trivandrum Chennai-Vizag Coimbatore-Chennai

AP14 2900 2900 2900

AP7 3240 3240 3240

Regular 3740 3740 3740

Q1 205185 405406 35037

Q2 163287 347231 30657

Q3 109490 200879 20898

Coimbatore-Delhi
Coimbatore-Hyderabad Delhi-Goa Delhi-Guwahati Delhi-Hyderabad Delhi-Indore Delhi-Jammu Delhi-Lucknow Delhi-Nagpur Delhi-Patna Delhi-Pune Delhi-Raipur Delhi-Srinagar

5400
2900 5400 5000 5050 2900 2900 2900 3550 3550 5050 3550 2900

6870
3240 6870 6870 6200 3240 3240 3240 4640 4640 6200 4640 3240

7650
3740 7650 7650 6980 3740 3740 3740 5420 5420 6980 5420 3740

112118
43796 309055 350369 122629 87592 115111 250222 280296 245259 75329 40292 140148

98103
38322 302923 306573 107301 76643 91972 183944 245259 214601 65913 35256 122629

50074
27373 180659 178981 76643 54745 65694 131389 175185 153287 47081 25183 56592

Mumbai-Chandigarh
Mumbai-Chennai Mumbai-Coimbatore Mumbai-Delhi

5050
5050 5050 5050

6200
6198 6200 6200

6980
6978 6980 6980

140148
140148 105111 420443

102629
102629 81972 327888

87592
77592 65694 262777

R square considering all three price band

Regression Statistics Multiple R 0.371971

R Square
Adjusted R Square Standard Error

0.148362
-0.02319 73695.09

Observations

20

ANOVA df Regression Residual Total 3 16 19 SS 1.4E+10 8.69E+10 1.01E+11 MS 4.65E+09 5.43E+09 F 0.85643 Significance F 0.483591

Coefficients Intercept X Variable 1 175862.1 -137.538

Standard Error 151134.6 101.1707

t Stat 1.163612 -1.35946

P-value 0.261641 0.192852

Lower 95% -144529 -352.01

Upper 95% 496253.2 76.93436

X Variable 2
X Variable 3 SUMMARY OUTPUT

280.7898
-170.643

495.8093
411.3924

0.566326
-0.41479

0.57903
0.683802

-770.279
-1042.76

1331.858
701.4702

R square considering corresponding price band

Regression Statistics Multiple R 0.137794

R Square
Adjusted R Square Standard Error

0.018987
-0.03551 122473

Observations

20

ANOVA df Regression Residual Total 1 18 19 SS 5.23E+09 2.7E+11 2.75E+11 MS 5.23E+09 1.5E+10 F 0.348385 Significance F 0.562366

Coefficients Intercept X Variable 1 119325.1 15.47458

Standard Error 108322.9 26.21738

t Stat 1.101569 0.590241

P-value 0.285162 0.562366

Lower 95% -108253 -39.6061

Upper 95% 346903.1 70.55525

SUMMARY OUTPUT

Regression Statistics

Inference

We have observed the Value of R square to be low in both case , but it is very low when regression is done only for corresponding Price data. Hence, based on relative value of R square we infer Cross Price elasticity exist and consumer demand vary as per price for different bands. Sinec R square value was low we tride to include one more variable, income

Inference

Since the majority of fliers between two city must be belonging to either city we used average per capita income of the two place to include income in model. The Result of regression was :

R square considering all three price band and income

Regression Statistics

Multiple R
R Square Adjusted R Square Standard Error Observations

0.421266
0.277465 -0.04188 122848.7 20

ANOVA df Regression 4 SS 4.88E+10 MS 1.22E+10 F 0.809079 Significance F 0.538514

Residual
Total

15
19

2.26E+11
2.75E+11

1.51E+10

Coefficients Intercept X Variable 1 X Variable 2 X Variable 3 X Variable 4 365685.1 -278.522 415.0591 -187.078 -0.67486

Standard Error 256071.4 206.3133 750.3904 622.6087 0.683857

t Stat 1.428059 -1.34999 0.553124 -0.30047 -0.98685

P-value 0.173764 0.197039 0.588328 0.76794 0.33937

Lower 95% -180118 -718.268 -1184.36 -1514.14 -2.13247

Upper 95% 911488.4 161.2248 2014.478 1139.981 0.782745

Again we observed the R square value to increase, Hence Demand is also dependent on Consumer Income

Inference
Demand is dependent on price across. Consumer Demand Change as per Income. Indian Aviation Sector has not utilized fully the price discrimination, in comparison to other market. Many hidden charges are there to analyze any particular Airlines. Database are not properly maintained .