Monday, June 17, 2013

Missed Pricing Opportunity in Barcelona

I am lucky enough to be traveling in Barcelona now (ostensibly for work). When we looked into taking the cable car to the top of Montjuic, I noticed the prices as posted below. Notice the bundling. The second ride is much less expensive than the first. But the same prices schedule was posted at the top of the hill as the bottom. Since the demand for traveling up is much greater than the demand for traveling down, I hoped to see price discrimination based on direction of travel.
We walked down.


  1. This is very interesting since traveling up is harder on the body than traveling down. I would have also expected a different price when on top than on bottom, but that doesn’t seem to be the case. I would have done the same thing as the writer, but I am a fit younger adult. It is interesting that there was no break for the elderly since they have harder issues walking. I understand the bundling at the bottom, but I do not understand the same pricing at the top. Yes that would piss people off, but that would have made a lot more profit.

  2. This is interesting. You would think that if you were starting at the top, the price would be less, but perhaps the reasoning is that many people will just take the cable car one way to see the views and walk the other way. People at the bottom are planning to take a trip up and will likely walk down. People at the top are already there and might just want a scenic view to ride down. Unless the guests have a car, I wonder how many are actually taking the cable car round trip. The fact that it is cheaper for a second trip would make me more inclined to take it both ways. However, at the small difference in price, I would probably still just take it one way.

    Speaking of Indirect Price Discrimination....
    The airline industry probably wrote the book on indirect price discrimination. Prices booked far in advance or last minute are usually more expensive then booked only a couple months out. Part of this is because business travelers tend to book airfare at the last minute, are not paying for it themselves, and the plans often change. Airlines know they can charge more for those last minute flights. Airlines also indirectly price discriminate by charging more for exit row seats, seats with more leg room, and business and first class. People who willing to pay more for extra space, included food and drinks, and more personal service demonstrate a more inelastic demand, and therefore, airlines can charge more. In addition to people willing to pay for the luxury, there are businesses who will not blink an eye at paying the higher fare. Additionally, one way fares are more expensive. Vacation travelers usually have greater price sensitivity, so their market has become more competitive, which “explains why business class seats can cost more than ten times the price of a coach ticket. The airline must fly as many coach passengers as possible at the price it must offer, while business fares further subsidize the cheaper coach fares” (2007).

    There are also frequent flier traveler programs where people often get discounts or preferred travel times. For example, it is usually more expensive to have shorter layovers that minimize the total travel time. They know some people are willing to pay more for more convenience, while others still want the cheapest options.

    Now, airlines are charging for food too, another form of revenue and another form of price discrimination. They can make more money by offering a variety of food and drink options for people to choose from. Many people will end up purchasing snacks, more inelastic demand. Others who are more price sensitive, creating elastic demand, will go without.

    The Economist (2007). “Airlines and Inequality.” New York.