In a saner world, 50 percent of the seats on a plane would be premium economy seats, priced at 30 percent (not 100 percent) more than economy. Yet this option does not exist.
And it’s kind of our fault. You see, the market for “pretty good” is a surprisingly difficult market in which to succeed. This problem arises whenever a logical assumption in economic theory collides with a quirk of human psychology. Economics assumes that every purchase decision involves a smooth trade-off between price and quality. If asked, consumers say the same thing: “I want good quality at a reasonable price.” In reality the mindset driving any one transaction is either primarily price-driven or primarily quality-driven. This leads to polarization in markets, where you get to choose between opulent but stupidly expensive or cheap and annoyingly crap — like grocery retail. Every time I see an article bemoaning the decline of a swanky department storie I want to say: “It’s not their fault, it’s their customers’ fault. They claim they want quality and value but they don’t.” You get a buzz from a bargain and a thrill from an extravagance — you don’t get an endorphin rush from mid-market retail. Fast-food restaurants have learned this lesson, which is why they practice something called “barbell pricing.” They have bargain items and treat items on the menu and nothing in between.
Not surprisingly these days, the airlines are often their own worst enemy on this topic: Outrageous: Southwest is giving free extra seats to obese people.