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dynamic pricing

COMPANY "AMERICAN AIRLINE"

Select a company that uses (or has used) dynamic pricing.
Using the Cybrary, the Internet, and/or your course materials,
Briefly explain how the company uses dynamic pricing.
Discuss the benefits and drawbacks of dynamic pricing for that particular company.

Perloff, J. M. (2004). Microeconomics (3rd ed.). New York City, NY: Pearson Addison Wesley.

Objective:
Explain the macroeconomic and microeconomic concepts and how they relate to the management of a global organization.
Critically analyze and evaluate real-life economic problems and opportunities by applying economic concepts, principles, and theory.
Discuss the opportunities provided by technology for businesse

Conclude with a summary of your findings.

Solution Preview

The first development of dynamic pricing is generally credited to American Airlines (AMR) , as a response to the rise of discount airline People's Express in the early 1980s. This pricing strategy helped AMR to save $1.4 billion in the period from 1989 to 1992, about 50% more than its net profit of $892 million for the same period. Modeling and optimization made the difference between profit and loss. Dynamic pricing, is also known as yield management. This is a set of pricing strategies aimed at increasing profits. In this strategy, prices are adjusted according to the option value of future sales which varies with time and units available. In this strategy AMR sells the right seat to the right type of customer, at the right time and for the right price. The key is to find the tradeoff between selling discount ticketing in order to fill up the plane totally, and selling full fare tickets ...

Solution Summary

Discuss the benefits and drawbacks of dynamic pricing for that particular company.

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