Wednesday, April 12, 2017

By Allowing Airlines To Auction Off Overbooked Flights, $100 Billion Has Been Saved

See Today is a good day to remember the great Julian Simon from Marginal Revolution.
"Today is a good day to remember the great Julian Simon. Here’s a piece on just one of his many accomplishments.
Julian Simon helped revolutionize the airline industry by popularizing the idea that carriers should stop randomly removing passengers from overbooked flights and instead auction off the right to be bumped by offering vouchers that go up in value until all the necessary seats have been reassigned. Simon came up with the idea for these auctions in the 1960s, but he wasn’t able to get regulators interested in allowing it until the 1970s. Up until that time, Litan writes, “airlines deliberately did not fill their planes and thus flew with less capacity than they do now, a circumstance that made customers more comfortable, but reduced profits for airlines.” And this, of course, meant they had to charge passengers more to compensate.
By auctioning off overbooked seats, economist James Heins estimates that $100 billion has been saved by the airline industry and its customers in the 30-plus years since the practice was introduced."

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