The question:
As a graduate from one of the world’s finest universities, you have been hired as a consultant by Qantas to write a report on its pricing strategy on the Sydney-Brisbane route. The requirements of the report are given below, but your report should address each specific question in turn. For the purposes of your paper, you can assume that Qantas is a monopolist in the relevant markets.
a. Outline the pricing strategy you recommend when Qantas knows the exact willingness to pay for the flight between Sydney and Brisbane for each customer. What conditions are required for this pricing strategy to be implementable? Make sure you provide clear economic reasoning for your answer.
b. Now assume that there are just two types of customer – business travellers and holiday makers – but Qantas cannot observe the consumer type for any given customer. The two types of customer differ in their valuation for the flight and in their price sensitivity.
What pricing strategy would you now recommend? Make sure you provide intuition for your recommendation.
c. Qantas is also interested in its pricing options for another potential scenario. Now the airline is interested in the relationship between two routes – the Sydney-to-Brisbane segment and the Sydney-to-Coolangatta (Gold Coast) route.
Assume that business travellers want to go to Brisbane, but can fly into Coolangatta if they have to. On the other hand, holiday makers only want to fly into Coolangatta (they value a flight to Brisbane at $0) and have a lower value of a flight than business travellers. What pricing strategy options are available to Qantas? In addition, what relationship between the two markets limits Qantas’s
School of Economics BUSS1040 Essay 1
ability to raise price. Compare your answer to part(b). Can you suggest any strategies that can help overcome this relationship? Make sure you provide economic arguments to justify your answer.
Please note:
1. This essay is 500 words long, not including references, appendices and diagrams. Any essays longer than 500 words will only be read and graded up for the first 500 words.
2. Apply the relevant theories from the unit of study when analysing the problem.
3. You may need to undertake some research to complete this assignment. Make sure you reference your essay completely, consistently and accurately.
4. In this assignment, you will also be rewarded for the depth of your analysis using the tools that you will have been taught in the unit.
5. You must back up with evidence or logical reasoning all statements that you make.
Your claims should be, where appropriate, supported by references to the existing work (detailed in the bibliography).
