March 21, 2003

Why Is Economy Class So Uncomfortable?

One of our graduate students, Peter Fishman, wants to write a paper about price discrimination. He has a great quote about mid-nineteenth century French railroads that he obtained from Andrew Odlyzko:

In 1849 Jules Dupuit wrote, "It is not because of the few thousand francs which have to be spent to put a roof over the third-class carriages or to upholster the third-class seats that some company or other has open carriages with wooden benches. What the company is trying to do is to prevent the passengers who pay the second-class fare from traveling third class; it hits the poor, not because it wants to hurt them, but to frighten the rich? And it is again for the same reason that the companies, having proven almost cruel to the third-class passengers and mean to the second class ones, become lavish in dealing with first-class passengers. Having refused the poor what is necessary, they give the rich what is superfluous."

Posted by DeLong at March 21, 2003 05:24 PM | TrackBack

Comments

In France, this anecdote his a classic in economic textbooks.

Posted by: jojolemerou on March 21, 2003 06:59 PM

Not long ago, sitting on an airplane, I had gotten a rare upgrade to First Class. And I was surrounded by giggling teen girls, travelling together.

The stewardess tried to quiet them, to no avail. And then their chaperone, the father of one of them, turned back and growled: "Jessica! You're going back to coach, right now!"

It worked. She shut up and begged him for mercy.

Posted by: Dan on March 21, 2003 07:16 PM

I first read the title as "Why is Economics Class So Uncomfortable?"

Posted by: bad Jim on March 21, 2003 09:08 PM

That witty play on the necessary and the superfluous is routine in French thought for a century after Voltaire.

Posted by: John Isbell on March 21, 2003 09:48 PM

Where have I seen this quoted? Isn't it in a Coase essay? Or a paper by Robert Ekelund or someone? I know I've seen it before.

Posted by: Kieran Healy on March 21, 2003 10:04 PM

Peter--discuss price optimization within the regulatory context of the time. Try the current global/US pharma price situation. For technology fodder see: http://www.rapt.com/

A small joke for the serious times we are in:

Microsoft: If GM leveraged technology as much as Microsoft we'd all drive $25 cars that get 1000 miles/gallon.

GM response: If GM cars worked like MS products they would crash twice a day and we'd all have to get new cars everytime they repainted the lines in the road.

How long can discrimination last...depends, doesn't it...

Posted by: Zack on March 21, 2003 10:05 PM

Keiran,

I've seen it (I think but I've lost my copy) quoted at lenght in Hal Varian's Information Rules, in the chapter on Versioning. He has a similar story about a mid 1980s computer printer which was deliberately degraded so it could be sold in 'fast' and 'ecoomy' versions.

Matthew

Posted by: Matthew on March 22, 2003 12:59 AM

...or possibly I did see it in the paper by Odlyzko. I was certainly reading Information Rules as my main course textbook at the time.

Posted by: Matthew on March 22, 2003 01:04 AM

OK, so price discrimination looks bad in this example. But actually, I'd like some more of it, for instance in flight travel. I would be happy to bring my own meal, not paying for all those stewardesses running around. Why isn't there a 3'rd class on the planes?
/Mats

Posted by: Mats Lind on March 22, 2003 02:45 AM

Mats,

Surely the airlines would catch on that bringing your own food is an improvement and charge you for the upgrade. ;-)

Actually, I have sometimes wondered why they don't sell sandwiches and such packaged to put in your carry on in airports. It would be so very easy to make a more interesting sandwich than at least some of the food you get on a longer flight.


- ask

Posted by: Ask Bjoern Hansen on March 22, 2003 06:50 AM

Re: airline food ...
I recall reading (it may be hearsay) that at reduced pressures we become somewhat desensitised to the taste of food (aroma?) and therefore nearly anything you eat in the air (unless specially prepared) is less appealing.
Therefore buying your own sandwich won't solve the complaints about airport food though behavioural economists might claim that because you were involved in the initial choice, cognitive dissonance would make you feel that your sandwich tasted better anyway (cf experiences in selecting queues and patience waiting in shops).
Note that software is a perfect example of price-discrimination, count the actual features you use in the lite, standard, and professional version (not to mention psychological marketingspeak in redefining "standard" for those used to robust unix-based software ... sigh).

Posted by: LL on March 22, 2003 07:22 AM

As a long time airline bringer of food (come on! didn't any of you ever bring a bag lunch to school? same thing.), I can tell you that eating a bag lunch on a plane is exactly as appealing as eating a bag lunch anywhere else.

Except with less elbow room.

(None the less, you can actually bring a pretty sophisticated picnic along, startling the heck out of your seatmates when you follow the olives-in-tupperware with wrapped chicken wings, a small salad, and perhaps a travel bottle of wine on the side. [That wine that they charge you $5 for? $1 at your local Safeway.)

Posted by: Dan on March 22, 2003 11:38 AM

It's in my survey of price discrimniation in hte Handbook of Industrial Organization, and also in the undergraduate textbook, but I don't think
I managed to work it into Information Rules. I first saw it in the Ekelund, QJE, 1970, p 268-78.

Posted by: Hal Varian on March 22, 2003 01:06 PM

Best of luck to your student! My father long ago advised me to avoid antenna design at all costs, I joke that instead I got involved in pricing.

There are always two seemingly obvious prices; one well known to the ghost of the past and the other to the ghost of the future. The seller and the buyer have unique relationships with their respective ghost. The liturature talks blithly of 'the hidden price.' The seller argues "Amazing how large these ghosts are!" The buyer sighs and says "Hrumph, I cann't hardly even see them."

I locked my self out of my car once and the man who came to rescue me had a tool he had made from the strip of a venetian blind. It took him a two minutes to walk across the parking lot, and 30 seconds to open the car. AAA paid him more than a hundred dollars.

Intermediaries seem to play a key role to getting in touch with these ghosts.

There was many years ago a marvalous article in Esther Dyson's Release One about the hotel room pricing software that would dynamicly price the rooms based on the minute and the hour of the day as well as each tiny fragment of information the machine could lay it's hands on as a hint to what the "guest's" hidden price might be.

Posted by: Ben Hyde on March 22, 2003 01:19 PM

Well, someone should say something about the Veblen-style effects of such price discrimination. i.e., that price discrimination is not just a tool for increasing monopoly rents but also for improving the welfare of the richest consumers. Because it distinguishes them from the middle class and the unwashed, price discrimination in transportation actually increases the marginal utility of first class seats, and therefore shifts out the demand for such such places. A clever trick, but one that's at least as ancient as Rome.

Posted by: andres on March 22, 2003 01:21 PM

Having just booked a flight to the US, I'm intrigued by this: not simply by the hierarchy of classes, but by the more intriguing hierarchy of frequent flyers' clubs and the privileges granted therefrom.

That's because there's an odd intersection of factors, based upon pre-established relationships, on-the spot decisions, and a mixture of good luck and skill. You get upgraded or moved to a better seat because you've paid for the privilege; because the fuck-ups of the airline have earned you a bribe/compensation for your inconvenience; or because the flight crew like your face/patter/promise of sexual favours.

It's all very Veblen, for sure, especially at the frequent flyer level.

There's also an interesting economic model in airline prices, based upon the distinction between flyers on an expense account, and those who pay out of their own pockets. (Same applies to 'airport hotels', to some extent, and to corporate computer software such as Oracle on the high level, and Adobe Photoshop on the lower level.) That's to say that you have an economy that's based at one end on people who don't feel the cost of paying for themselves, and one where they do.

Posted by: nick sweeney on March 23, 2003 08:51 AM

Turn over an American Enterprise type and you get an FDR lament. Rotten Social Security, rotten TVA, rotten FDR policies that saved American capitalism. Let the banks run free. Duh. Why am I not iompressed with BL? We see how well deregulation and Enron got along together. L<ove ya, Enroners.

Rotten Social Security. That is what American enterprise is really after, now.

Posted by: bill on March 23, 2003 09:28 AM

March 23, 2003

Perle's Plunder Blunder
By MAUREEN DOWD - NYTimes

It's Richard Perle's world. We're just fighting in it.

The Prince of Darkness, a man who whips up revelatory soufflés and revolutionary pre-emption doctrines with equal ease, took a victory lap at the American Enterprise Institute on Friday morning.

The critical battle for Baghdad was yet to come and "Shock and Awe" was still a few hours away. (The hawks, who are trying to send a message to the world not to mess with America, might have preferred an even more intimidating bombing campaign title, like "Operation Who's Your Daddy?")

Posted by: bill on March 23, 2003 09:33 AM

Sorry - My posts were meant for Brink Lindsey article....

Posted by: bill on March 23, 2003 10:07 AM

It's kind of amusing that I just came across a breakfast menu from third class on a Canadian Pacific steamship from Southampton to Quebec in 1927.

Compote of Figs
Oatmeal Porridge with New Milk or Syrup
Grape Nuts
Fried Fillet of Hake
To order - Boiled or Fried Eggs
Broiled Wiltshire Bacon
Broiled Pork Sausage
Breakfast Rolls
Toast
Jam
Marmelade
Tea
Coffee

Now this was in the third class - immigrants and poor people - dining room. Compare this to a United Airlines coach class boxed breakfast. How did air travel come to be so uncomfortable? Why were steamship lines able to offer so much more comfort to third class passengers than airlines are able to offer in the main cabin?

Even different airlines offer much higher quality service than American ones. After years of flying United and Northwestern, British Airways was pretty good, and Singapore airlines was just spectacular.

Posted by: Scott Martens on March 23, 2003 02:06 PM

I think that you could become president by running on a ticket of forcing airline executives to fly coach.

Posted by: John Eckstein on March 24, 2003 11:05 AM

Scott: My uneducated guess is that the international airline industry is a nearly closed oligopoly due to its high startup costs. In such a situation, profits are made by squeezing costs as much as necessary, which means that airline food is wanting in terms of quality and quantity; lack of competition (i.e., local monopolies) prevents product differentiation (i.e., the better service of Singapore Airlines) from having substantial effects on market shares.

Posted by: andres on March 24, 2003 11:08 AM

I believe there was a fourth class -- steerage -- where the truly poor travelled, but perhaps I'm wrong.

Isn't the major element of class discrimination in airline tickets the one we're not going to remedy: space? I don't care about headphones, crappy food, or free booze; it's trivial to procure those things for myself. What I care about is the fact that with the legs of someone 6'5, I literally have to shoehorn myself into a coach seat. But given the high fixed costs and trivial marginal costs of a flight, I don't see how the airlines can significantly increase the space available without significantly raising the cost of a ticket, although I can see that some of the loss would be in the unwillingness of business travelers to pay for business class if coach weren't so %#@! uncomfortable. But with break-even loads in the range of 75%, I don't see how you could actually improve the quality of flight for coach passengers without raising their costs, even if you take the other classes out of the equation.

Posted by: Jane Galt on March 24, 2003 02:22 PM

Blimey! I didn't foresee my three-year-ago recollection of Hal Varian's excellen 'Information Rules' to be challenged by Hal Varian himself.

I must read harder.

However, unsurprisingly I should point out Hal Varian is right, I found the course notes and it was an article of his.

Posted by: Matthew on March 24, 2003 03:55 PM

Re: LL & airline food ...

I can personally assure you that moderatly lower air pressure (~9000ft) does not affect taste.

After days of backpacking & dehydrated food, a freshly caught trout tastes like a dream on fins.

rbb

Posted by: Mobius Klein on March 24, 2003 04:30 PM
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