Role of exchangeable tickets in the optimal menu design for airline tickets

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While menus are offered pervasively in the airline industry, the nature of the menu design remains unclear. To have a better understanding in the menu offerings, we build a stylized model to examine a monopolistic seller’s optimal menu design with three types of tickets: refundable, nonrefundable, and exchangeable tickets. We show that for the seller, the exchangeable ticket is inherently more profitable than the other two types of tickets; thus, it is an indispensable element of the optimal menu.

Collected and summarized from the source below by Minh Pham