Why do one-way tickets cost more than round-trips?

August 7, 2008

Well with the greatest minds in Austrian economics assembled here at FEE, we are pondering an interesting economics puzzle, put to me by a former SLU colleague (from our math department):

Why do most airlines charge substantially more for a one-way ticket than a round-trip ticket on the same route?

For example, my colleague can buy a round-trip for about $250 whereas a one-way will cost him almost $700 on the same route.  What gives?

Professors White and Lewin have offered two possible answers:

1. It’s price discrimination – one-way fliers might need specific times and flights in a way that makes their demand more inelastic.

2. Some people might pay a premium for a one-way ticket in order to leave their return open-ended.

My own thought was that it’s a matter of not wanting an empty seat coming back the other way given the low probability of a “double coincidence of one-way tickets.”

None of us are very confident at all in our answers.  Thoughts from our wonderful commentariat?

via The Austrian Economists by Steve Horwitz on 8/6/08