Say Alice is willing to pay $100 for a given flight, while Bob would at most pay $50. The airline wants to charge Alice $100 and Bob $50, netting $75 per seat on average.
Agentic access would give Alice the chance to cross-shop and buy the cheaper flight as well. But now, to net the same amount, the airline has to charge $75 per seat, excluding Bob from participating in this market.
In your example ($50/$100), the airline is extracting all consumer surplus. This is called perfect price discrimination, and it is bad for consumers.
There is nothing stopping the airline offering Bob $50 per seat in the second scenario, other than profit preservation. If they were making a profit on the $50 ticket in the first scenario, they are making it in the second. They just happen to also be making less profit on the $100 ticket.
In effect you are making corporate profit a constraint on the market, which is not the case.
Your example actually shows that the welfare extractive pricing algos companies use today can be undermined by AI, which is good for consumers in this narrow example.
Well actually, price discrimination permits a kind of cross subsidy when there are large fixed costs involved, and flights have substantial fixed costs.
It might not be profitable to fly a route at all if not for high paying customers. But if you can get a few high paying customers and provide return on capital, then extra customers are, relatively speaking, gravy.
And the cheap flights for those customers? Consumer surplus, baby.
If they can afford to fly Bob for $50, Alice deserves that too. If that means the flight isn't profitable, then I guess they couldn't really afford to fly Bob or Alice for $50 and that price was a farce to begin with. I can understand airlines want to squeeze their customers for the maximum they are willing to pay, but I don't think that makes a good argument and I don't they should be entitled to it.
In their defense, the $50 fares aren't profitable on its own. It costs $140 to fly this two-seater plane in the simple illustration (and let's wave away Alice and Bob's weights). Charging one of them $100 (that their company would pay for anyway) makes it possible for both to fly. That's not really bad.
By that logic, Alice paying $140 lets Bob fly free, but that's not what we see in reality.
She's only willing to pay $100 so neither ticket will sell.
This has already been going on for years. Google Flights and Kayak already have fare histories, fare forecasts, fare monitors with automated notifications. So now anybody can get the cheapest price with a low effort.
The industry responded with aggressive unbundling - basic eco now has no carry-on, no seat selection, no changes. All can then be bought as extras.
This is a scenario across many industries - hotels, car rental, cruise, concerts, online retail etc.
Basically - yes that trend is bad for Bob, but it makes things more transparent, fair, and increases competition. It's the way the world goes - hard to stop that.
Yes, but this type of stuff compounds. Moreover, the fact that agents are now the lowest friction interface for this stuff makes it a potential double-whammy.
A similar example discussed recently on the podcast ”The Real Eisman Playbook”[0] illustrates the point: Many retail investors have trading accounts with some cash sitting idle. The brokers earn a healthy margin by investing that cash into short-term money market funds (MMF).
Now obviously, the diligent investors could easily buy the MMFs and pocket the profit themselves. However, many of them are lazy or don’t care. But now with agentic access, even the laziest user can optimize their short-term cash holdings, which might cost the brokers relying on this income dearly.
How does the airline sell the same type of ticket to Alice for $100 but Bob for $50? I don't think airlines show consumers different prices for identical tickets at the same moment in time. The prices are constantly in flux and vary by fare class, amenities, the time you book, etc. But if Alice and Bob both go online to buy a near identical ticket at the same time I don't see how they would get different prices.
You said they’re “trying to reduce prices for everyone” and you’re describing them trying to maximize prices for everyone (which, yes, they want to do).
[Edit: didn't pay enough attention to the flow of the conversation here - this is really a response to ProblemExplorer's original post, which linked to _diyar's post (parent to this one) as explanation].
> You said they’re “trying to reduce prices for everyone” and you’re describing them trying to maximize prices for everyone (which, yes, they want to do).
No they did not. I am the grandparent and linked to their comment because they concisely explain how the airline made $150 off two sears instead of $100 while giving Bob the $50 deal he wanted (bay making Alice subsidize Bob).
If Alice used an MCP too, there would be no subsidy and neither Bob gets the $50 seat nor does Alice get her $100 seat
?
"made $150 off two seats instead of $100 while giving Bob the $50 deal he wanted" is maximizing the amount each passenger would pay.
In fact, I did not say that.
Ah - sorry! I understood ProblemExplorer's linking to your post as a link to a subsequent post of theirs, which it clearly isn't now that I look again!
My post was a response to ProblemExplorer's language, not yours.
You say this as if consumer and producer surplus are new phenomena.
And you vastly overestimate the price discrimination that airlines have today for comparable classes of service.
They don't make their money on economy seats.
Sounds like algorithmic pricing works both ways. Good.
precisely. I worry people aren't "getting it". I edited my post to point to this comment as it's very short and precise.
It's not. Airlines do not make their money price discriminating economy customers over the same route at the same time.
Dynamic pricing is mostly a seasonal and timing game. And the actual money is made in higher classes of service.
This idea that Bob and Alice are shown drastically different pricing for the same seat because of insights into their specific purchasing behavior is just ludicrous.
Most people buy tickets from aggregators who have been already gutted the ability to do this anyway.
> This idea that Bob and Alice are shown drastically different pricing for the same seat because of insights into their specific purchasing behavior is just ludicrous.
You basically argued literally the entire thesis for customer segmentation and behavior based pricing and then called it ludicrous. I hope PhDs and statisticians who make living building these very models don't see this comment and begin to question their entire existence.
No I didn't. I argued the segmentation you were suggesting is not the segmentation around which price discovery actually takes place.
You've just read past what I said because you want to disagree.