Market Failure in Auctions?

Photo: Javier C. Hernandez/The New York Times

As did its recent acquisition, Northwest Airlines, Delta is doing on-line auctions of seats that must be vacated if the plane is overbooked. At online check-in, each passenger is asked what price s/he would require to be bumped to a different flight. Yet the results are apparently not acceptable to Delta: After his check in (where he refused to accept bumping), my son was offered $250 via a telephone call six hours before his flight to be bumped to an earlier or later flight. Did Delta not get enough offers online? Were the passengers’ reservation prices too high for Delta’s budget? Or is the airline simply playing games with its passengers, hoping to induce a few of them to accept a lower price? Other explanations? (HT: DJH)


Tg3

I am ignorant about the $800 rule. If it comes to the point where they have to physically take passengers, is that when the $800 rule comes in?

If they call you and ask if you will accept $250 to take a bump and you accept, wouldn't that now be considered voluntary thereby skirting the $800 rule?

Just a thought. Thanks...

justapax

Tg3,
thats the deal assuming they don't have a seat within 4 hours. So the game is to get someone to take less before bumping somebody for 400 or 800 "dollars". It looks like 300-350 would be wise bid IF you are flexible. If you are going to a funeral or a wedding try to be at the gate on time.

AaronS

If Delta offered your son $250 to be bumped, then it stands to reason that someone else is paying AT LEAST $250 more than your son to ride the plane--otherwise, you'd have a wash, right?

That is, it seems to me that after overbooking a flight, Delta is "keeping" the highest paying customers, and then seeking to bump the customers that will accept the lowest buy out offer.

If a customer could do this even on the flight to which he was bumped, he could game the system by accepting some low-ball offer, thus getting bumped consistently...until he was not only flying on the airline's money, but had a wad of cash for vacation, as well.

Lauren

I think the fact that Delta is offering this payment plan for switching your flight, could be a good plan if it were better executed. It is questionable as to whether or not they should be overbooking flights. I think that Delta as a corporation should better manage how many seats they sell compared to how many seats are available on each plan, to save a lot of money not only on reimbursement of tickets, but also offering customers "rewards" for switching flights.

Barry

Airlines in this country are the spawn of the devil. What more do you need to know?

Tim

Three forces clearly distort the normal function of the auction here:
1) There is no urgency on the part of the bidder, since the intended benefit is a windfall but also an inconvenience- and thus they can be unreasonably high in their bids.
2) The "market" may indeed know about the $800 figure, but even if not, it has been trained to hold out for a lot.
3) Only the most casual of flyers can really afford to delay plans (and thus bid low), and those flyers are already flying something OTHER than Delta!

Cindy

I did not see any mention of one significant factor on Delta's side for their offer-- they offered by phone long before the flight, when the passenger is still at home and not at the terminal counter. The bid is a "pie in the sky" or "make me move" price and people tend to overbid, most will react differently with a genuine offer and a chance to finish that movie or project at home.

By offering earlier before people leaves home, it guarantees that more people would take it. As for demographics, the order should be: 1. single (bought by self not a group), young travelers with restriction tickets; 2. other single travelers with restriction tickets. People traveling alone are way more flexible than people traveling in a group. However, I would have taken the "no bump" choice seriously and not assume a passenger has overlooked a chance to bid.

Justin

The timing of the call would seem to be important. I would, for example, be much more willing to be bumped to a later flight via a phone call before I've headed to the airport than once I'm in the airport awaiting the flight. It's far more convenient to be able to sit at home doing whatever I would be doing were I not flying somewhere for an extra couple hours than to spend those hours in an airport.

If Delta knows that it is likely (based on the bids) to cost them $400 to bump enough people from a particular flight once they're all in the airport, it would seem to make sense to call some of those people in advance and see if they would accept a lower payment for a less disruptive change in their plans. Seems like a very efficient approach.

Dan

I'd like to correct a glaring factual error across many commenters -- the MAXIMUM compensation for involuntarily bumping is $800. The actual rule is 1x (for within 2-hour re-accommodation) or 2x your remaining 1-way fare. So, for a flight from Atlanta to Athens, GA you could end up getting a whopping $40 if you bought a cheap fare from Honolulu or LAX.

Sometimes it is better to take the voluntary offers -- but if they do involuntarily bump you, they do have to tell you the amount you'd get if you volunteered so you can always volunteer at the last minute if you aren't making it anyway.

-d

Andreas Moser

Justapax (comment 22),
when going to a wedding, I'd love to be bumped. What a useful excuse to not have to show up.
Just always take enough reading material with you to travel!