In the second half of2002, several major U.S. airlines began running market tests to determine if they could cut walk-up or unrestricted business fares and maintain or increase revenues. Continental Airlines offered an unrestricted fare between Cleveland and Los Angeles of $716, compared with its usual $2,000 fare, and found that it earned about the same revenue as it would have collected with the higher fare. Making similar changes on its routes from Cleveland to Houston, Continental found that the new fare structure yielded less revenue, but greater market share. On the Houston-Oakland route, the new fare structure resulted in higher revenue.
a. What did these test results imply about business traveler price elasticity of demand on the Cleveland-Los Angeles, Cleveland-Houston, and Houston-Oakland routes for Continental Airlines?
b. How did these results differ from the discussion of airline elasticity in this chapter?
c. What factors caused these differences?