Some economists argue that competitive price-searcher markets are inefficient because the firms earn economic profits in the long run. To the extent that competitive price searchers fail to expand output to the minimum per-unit cost rate, many economists believe that this high cost is merely a premium that must be paid for higher entrepreneurial profits. It is cheaper to provide airline service to students and vacationers than to business travelers. The demand of business travelers is generally more elastic than the demand of students and vacationers. The demand of students and vacationers is generally more elastic than the demand of business travelers.
Airlines prefer to deal with students and vacationers rather than business travelers.
The firm must face a downward-sloping demand curve. There must be at least two distinguishable groups of consumers. The producer is able to serve one group of customers more efficiently. The seller must be able to prohibit buyers from easily reselling the product to other potential buyers. A practice whereby a seller charges different prices to different consumers of the same product or service is called price discrimination.