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Mark Perry, the respected economist behind the brilliant Carpe Diem blog, is calling out economist Robert Reich for a recent post he did on aeroplane ticket pricing just before Hurricane Sandy.Reich wrote that ticket prices for a flight out of New York’s JFK airport were cranked up to $4,000 just before departure. Yet the flight was oversold by 47 seats. So, the airline offered $400 vouchers to 47 volunteers who took a later flight, which almost certainly netted the company a hefty profit.
But the transaction was also deeply exploitative. The airline netted a huge profit because of the impending storm.
I couldn’t help think this was a miniature version of the America we’ll have if Mitt Romney is elected president. Rational and efficient in terms of supply and demand, guaranteed to maximise profits, but fundamentally unfair.
Perry thinks this is a bit hypocritical as Reich charges arguably exorbitant fees for speaking appearances. Here’s Perry:
Here’s what I find exploitative and fundamentally unfair: Robert Reich’s speaking fee is $37,500 to $100,000 according to the website below, and he therefore is able to net huge personal profits for his 30-minute talks.
OK, actually, I think it’s great that Professor Reich uses market-based pricing for his speeches, and I applaud him that he can apparently charge speaking fees as high as $100,000 based on demand, but then he really shouldn’t complain when an airline uses market-based pricing to allocate scarce seats on a plane when demand is high during a natural disaster.
The cases aren’t exactly comparable. But they’re both examples of how people can use a free market to operate efficiently.
The debate seems to be over when a person should draw the line in their efforts to maximise profits
Read Reich’s post here.
Read Perry’s post here.