A new one for price discrimination: taxing the late

One of the popular travel options in Toronto is Porter Airlines which operates out of the City Airport and so is just 15 minutes from my University of Toronto office. Because it is a small airport, it is the kind of airport where you can literally leave an hour before your flight with no problems.

Well, sort of. I found out yesterday that, if you book, the lowest, Basic fare and you check in on the web, you are not given a mobile boarding pass or one you can print out. Instead, you *have* to queue up and get the pass from a gate agent. (And no they don’t have any electronic check-in terminals at the airport). In other words, it is inconvenient and, critically, creates a ton of risk in terms of leaving to go to the airport later as you might find the queue lengthy and long with people who need to change a flight or check bags or something.

This is what economists have termed, a damaged good. It is where a firm actually incurs more costs to supply a lower quality product. It doesn’t occur often but, as Preston McAfee showed years ago, it is theoretically profitable because it allows for third-degree price discrimination or versioning. That makes it also fun for teaching as it seems so outrageous.

What is Porter Airlines ‘taxing’ here? Yesterday, an article in The Atlantic put it nicely — there are people who like to be late to the airport. If you are one of those people, you want to pay for a higher priced ticket on Porter so you can be late without additional risk. (That said, the article also pointed out that late people apparently like the ‘rush’ of being late, in which case having more obstacles in their way can give them that OJ type of feeling. The fact Porter is trying to tax them with more risk suggests that this ‘rush’ idea probably isn’t real. Some people are just late.)

But there is an interesting twist here. Normally, when you price discriminate, you want customers to be clear on the different product qualities prior to purchase. But on Porter’s website where they explain the fares, they do not disclose this fact! And there was nothing about this on the ticket receipt either. So the only way you find out is if you have a basic fare and are confused and so, the next time, you won’t be! And they aren’t nice about it either because they send you a notice to check in on the web (as I found out) and then, only after that, do they say you have to go pick the boarding pass up from a gate agent! To quote Dr Strangelove “the whole thing doesn’t work unless you tell people about it.”

As sympathetic as I am to the idea of price discrimination, it is hard to consider this whole matter as anything but a very poorly thought out strategy from Porter. Also, one would think that the lack of disclosures would raise consumer protection concerns.

2 Replies to “A new one for price discrimination: taxing the late”

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s