Price Elasticity Airlines

The piece "Airlines try cutting business fares, find they don't lose revenue" explains how major airline firms in 2002 cut their business travel fares in an attempt to generate more business "and bring back business travelers who are staying at home, buying in advance or running to discount airlines" (McCartney, S. November 22, 2002). Of particular interest in this dynamic is the effect on total revenue generation resulting from the decrease in prices. Pricing logic might suggest that a decrease in fares would produce a loss in revenue however, in the case of Continental Airlines a fare decrease on a flight from Cleveland to Los Angeles from $2,000 to $716 resulted in Continental generating revenues equal to those at the previous higher rate, while gaining market share (McCartney, S. November 22, 2002). The rationale for this outcome can be explicated by the economic principle of price elasticity...
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