Last spring we saw an example of
the wrong way to remove an overbooked
airline passenger: physically drag
them down the aisle.
A couple weeks ago there was an example
of the right way to do it.
Delta Airlines held an auction.
They made an initial offer, but
the passengers on this flight had
strong reasons why they wanted to be
on this flight. Nobody took that
offer. Therefore, the airline had
to start increasing the offer. Every
time they increased the amount, each
passenger had to decide if it would
be worth giving up their seat on the
flight for that amount. If you’re
one of the passengers, you might
decide to wait to see if the amount
becomes even larger, but of course if you
do that there is the risk that someone
else will signal first (so you don’t get
the money, but you will get to stay
on the flight).
By overbooking, airlines are
able to more efficiently arrange their
flight schedules, which works for the
benefit of all of us. However, they
cannot be allowed to involuntarily
bump someone from a flight. As long
as they compensate the bumped passengers
enough that they are willing to be
bumped, it works fine. An auction is the
best way to do it. In economic terms, what
makes the auction efficient is that a variety
of tentative prices are tested, but no
transaction takes place until the final
equilibrium price is determined.
In this case, the loser/winner received
$4,000 (they lost their seat, but won
the auction). See
http://abcnews.go.com/Travel/woman-receives-4k-vouchers-give-seat-overbooked-flight/story?id=49835876
and
https://douglasadowning.wordpress.com/2017/04/20/what-to-do-about-airline-overbooking/
……………..
–Douglas Downing
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