Saturday, April 19, 2008

Government Bumps Prices to Reduce Bumped Fliers

I don’t care for the trade-off. New regulations double the compensation to fliers who get bumped from overbooking. The obvious consequence is an increase in the price of airline fares and lower profit (thus consequences from lower profit as well). What are the other hidden unintended consequences? How would doctors, dentists, or restaurants respond if we imposed a similar regulation on them? Smaller planes? More red-eye flights? Larger first-class sections intentionally undersold to move the overbooked passengers so they won't complain to the Feds? As you can probably tell, I know very little about how the logistics and economics of this industry.


Matt E. Ryan said...

Since this increases the benefit of booking a flight, you'd expect sales to increase on the margin. I'd say airlines would probably cut back a bit on overbooking-- if each airline overbooks by 5 seats, maybe they cut back to 2 or 3.

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