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Come on forward, the price is right! – More airlines are auctioning off seats | The Economist

AS LONG-TIME readers of The Economist can testify, this newspaper likes auctions. For economists, it is the best solution to most problems. It is more elegant than the other two main forms of setting a fee: haggling and menu pricing. The former is inefficient because the seller might not be negotiating with the person prepared to pay the most. The latter will be inefficient unless the seller has exhaustive knowledge of the supply and demand conditions and can quickly adjust his prices accordingly.

Airlines generally take a version of the latter approach. They use dynamic pricing that calculates demand for seats on their planes and updates the fare accordingly. Generally, their algorithms do a pretty good job. Even though the price of the same seat on a flight can vary greatly over the period it is on sale, the average plane is around 80% full.

But more and more are also having a look at auctions, particularly for those looking to upgrade their seats. Some 30 carriers around the world have tried it out. The latest is Singapore Airlines, which has unveiled a new bidding system in which economy-class flyers can bid for a swankier seat in premium economy. Passengers receive an e-mail around a week before the flight asking whether they would like to bid for an upgrade and setting a minimum price. This can then be changed or cancelled any time until 50 hours before the flight, when the “winners” are informed.

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Come on forward, the price is right!: More airlines are auctioning off seats | The Economist.

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