Last modified: 2017-05-30
Abstract
The Yield Management is the main pricing method used nowadays by airlines companies in order to set their prices; but also by railroads companies like SNCF. This method appeared in the United States at the end of the 1970’s. It is often presented as an innovation with more practical than theoretical foundations.
The aim of this communication is to demonstrate that this pricing method has nevertheless solid theoretical foundations, it actually takes back again an older pricing method: the pricing method of infrastructures exploited by a monopoly proposed by Jules Dupuit in 1844 and developed by Colson from 1890.
To demonstrate this, several points will be analysed.
First of all, we will present the results of this theory: it is possible to measure the utility of an infrastructure and a discrimination price must exist in order to charge each user a tariff corresponding to the value in use that he grants for using the infrastructure, that is to say the maximum price he is willing to pay to use it. This will lead us to notice that there is a problem in Dupuit: he doesn’t propose any practical mean in order to bring the users to reveal the value they attach to the use of the infrastructure. In fact, this makes the method difficult to be applied.
So we will demonstrate that Colson completes the method. Indeed, he proposes a mechanism for revealing preferences in the field of transports with a system of options that users choose. Thus, this leads them to reveal the value in use that the transport has for them.
Then, we will see that the theory as presented by Colson was taught by his successors, Divisia and Roy, at the Ecole Nationale des Ponts et Chaussées and influenced the SNCF at its creation. It was then abandoned for a new theory based on marginal cost proposed by Allais. The main pricing centre then moved from the Ecole des Ponts et Chaussées to the Ecole des Mines. At this moment, the theory based on value in use fell into oblivion.
Finally, we will demonstrate that the Yield Management marks the return of the theory based on the value in use. At the beginning, great airline companies retake only the Dupuit’s theory. The recent development of low cost companies marks also a return to the options mechanism presented by Colson.