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Jewish World Review Nov. 3, 1999 /22 Mar-Cheshvan, 5760

Walter Williams

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Econophone

Is it airport security?

http://www.jewishworldreview.com --
PONDER THIS. You're traveling to Los Angeles. You've gone through security check. Your luggage has been X-rayed. One wonders what else, in the name of security, is accomplished when you're asked at check-in to show a photo ID and questions like: Did you pack your luggage? Was it in your possession at all times? Did anybody give you anything to carry?

Airline companies always like to say, "According to federal regulations," we have to wear our seatbelts, obey crew instructions, and do this and do that. But as for a photo ID, the Federal Aviation Administration's (FAA) web site says, "The FAA does not prohibit the airline from transporting a passenger who does not present a photo ID" So why do airlines inconvenience passengers and ask the stupid questions? At least part of the answer lies in economics.

Often people aren't charged the same price for what appears to be the same good or service. There are many examples of this: seniors get discounts, children are charged half-fare on trains, buses and airplanes, doctors often charge poor people lower fees, and theaters charge lower prices for matinee shows.

In grown-up economic terms, sellers practice third-degree price discrimination -- where different people are charged different prices when that difference cannot be explained by differences in cost. For example, the fact that children are charged half fare for a flight from New York to Los Angeles doesn't mean they are half as costly to transport.

Price discrimination is a marketing strategy that produces higher revenue than simply charging everybody the same price. But to engage in price discrimination, you must be able to separate markets. Arbitrage must be prevented -- a fancy term for people buying low and selling higher. It would defeat the airline's revenue goals if a child purchased a ticket at half price and an adult used it.

Separating the adult market from the child market is easy. But other markets are more challenging, such as the businessmen market and tourist market. For the same trip, airlines charge tourists (spending seven days or a weekend day) lower prices than businessmen who go and come back the same day or the next day. The airline's marketing strategy is weakened if businessmen use tickets priced for tourists. Demands for photo IDs help airlines separate markets by enabling them to determine who bought what ticket. "Security" questions about who packed your bags, whether anybody gave you anything to carry, etc., are thrown in for laughs to make the ruse plausible.

Don't call the Department of Justice crying about price discrimination. Price discrimination is everywhere; we all practice it and nothing's wrong with it.

For example, take a gorgeous young lady. Who is she more likely to get to buy her furs and wine and dine her at costly five-star restaurants: a handsome young guy or a fat, old, ugly cigar-smoking man? If you said fat, old, ugly, cigar-smoking man, go to the head of the class. The lady is practicing price discrimination -- charging fat, old ugly, cigar-smoking men higher prices. By the way, it works the other way around, as per the admonishment of the Latin song with the lyrics, "If you want to be happy for the rest of your life, take an ugly woman for a wife."

As for the airlines, I'd like for them to be forthright and not use the FAA as an excuse. Just post a sign, "We engage in price discrimination and would like to see a photo ID to make sure you're traveling on the highest price ticket we can sell you."


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©1999, Creators Syndicate