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

 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.

AIRLINE INDUSTRY

Route Chennai-Trivandrum Chennai-Vizag Coimbatore-Chennai Coimbatore-Delhi CoimbatoreHyderabad Delhi-Goa Delhi-Guwahati Delhi-Hyderabad Delhi-Indore Delhi-Jammu Delhi-Lucknow Delhi-Nagpur Delhi-Patna Delhi-Pune Delhi-Raipur Delhi-Srinagar Mumbai-Chandigarh Mumbai-Chennai Mumbai-Coimbatore Mumbai-Delhi

AP14 2900 2900 2900 5400 2900 5400 5000 5050 2900 2900 2900 3550 3550 5050 3550 2900 5050 5050 5050 5050

AP7 3240 3240 3240 6870 3240 6870 6870 6200 3240 3240 3240 4640 4640 6200 4640 3240 6200 6198 6200 6200

Regular 3740 3740 3740 7650 3740 7650 7650 6980 3740 3740 3740 5420 5420 6980 5420 3740 6980 6978 6980 6980

Q1 205185 405406 35037 112118 43796 309055 350369 122629 87592 115111 250222 280296 245259 75329 40292 140148 140148 140148 105111 420443

Q2 163287 347231 30657 98103 38322 302923 306573 107301 76643 91972 183944 245259 214601 65913 35256 122629 102629 102629 81972 327888

Q3 109490 200879 20898 50074 27373 180659 178981 76643 54745 65694 131389 175185 153287 47081 25183 56592 87592 77592 65694 262777

R square considering all three price band

SUMMARY OUTPUT Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations ANOVA Regression Residual Total df 3 16 19 SS 1.4E+10 8.69E+10 1.01E+11 Standard Error 151134.6 101.1707 495.8093 411.3924 MS 4.65E+09 5.43E+09 F 0.85643 Significance F 0.483591 0.371971

0.148362
-0.02319 73695.09 20

Intercept X Variable 1 X Variable 2 X Variable 3 SUMMARY OUTPUT

Coefficients 175862.1 -137.538 280.7898 -170.643

t Stat 1.163612 -1.35946 0.566326 -0.41479

P-value 0.261641 0.192852 0.57903 0.683802

Lower 95% -144529 -352.01 -770.279 -1042.76

Upper 95% 496253.2 76.93436 1331.858 701.4702

R square considering corresponding price band

SUMMARY OUTPUT Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations ANOVA Regression Residual Total df 1 18 19 SS 5.23E+09 2.7E+11 2.75E+11 Standard Error 108322.9 26.21738 MS 5.23E+09 1.5E+10 F 0.348385 Significance F 0.562366 0.137794

0.01898 7
-0.03551 122473 20

Intercept X Variable 1 SUMMARY OUTPUT

Coefficients 119325.1 15.47458

t Stat 1.101569 0.590241

P-value 0.285162 0.562366

Lower 95% -108253 -39.6061

Upper 95% 346903.1 70.55525

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

SUMMARY OUTPUT Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations ANOVA Regression Residual Total df 4 15 19 SS 4.88E+10 2.26E+11 2.75E+11 Standard Error 256071.4 206.3133 750.3904 622.6087 0.683857 MS 1.22E+10 1.51E+10 F 0.809079 Significance F 0.538514 0.421266 0.277465 -0.04188 122848.7 20

Intercept X Variable 1 X Variable 2 X Variable 3 X Variable 4

Coefficients 365685.1 -278.522 415.0591 -187.078 -0.67486

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 .