The price of the last seat

Two passengers on the same flight, in identical seats, frequently paid very different amounts. This is not a mistake and it is not simply unfair. It follows from an unusual feature of the product.

An empty seat on a departed aircraft is worth nothing, permanently. It cannot be stored and sold tomorrow. The cost of carrying one more passenger who is already at the gate is close to zero: a little fuel and a meal. This means that almost any price above that is better for the airline than an empty seat, and the airline knows it.

The difficulty is that if everyone expected a cheap last-minute price, nobody would book early, and the airline would lose the passengers willing to pay more for certainty. So prices are managed to separate those two groups. The traveller who needs a specific flight on a specific day pays for that certainty. The traveller with flexible dates is sold the leftover capacity.

The same structure appears wherever capacity is fixed and perishable: hotel rooms, concert tickets, fresh bread at the end of a market day. Each has a moment after which the unsold unit is worth nothing, and each develops some mechanism for selling cheaply at the end without destroying the price at the beginning.

Understanding this does not make the price fair. It explains why the person beside you paid less, and why arriving early is not always the cheaper strategy.