Why are flight tickets Non-transferable?
June 11, 2010 5:06 AM   Subscribe

Can someone explain the interplay between Consumer Rights and Non-transferable purchases? I mean when I buy 'something' I feel that one 'should be able' to give it to a friend instead of using it myself. But with certain things like Airline Tickets, some software licenses etc I can't do this. Does this not contradict to the ideas behind 'consumer rights'?

I'm always annoyed that I can't say buy two tickets to Rome, one for me and one open one for 'whoever happens to be free' that weekend. but as Flight Tickets are Non-Transferable I can't without incurring a name change fee - which often exceeds the value of the tickets.
posted by mary8nne to Shopping (11 answers total)
IANAL, but it seems like this has something to do with the fact that you're not buying a thing. If you bought an airplane or a computer, you could give it to whoever you wanted.
posted by madcaptenor at 5:10 AM on June 11, 2010

It was not always thus (with flights, anyway) -- at one point, people could sell their airline tickets without much hassle.
posted by ricochet biscuit at 5:12 AM on June 11, 2010

Yeah, you're not buying a product, you're buying a service. Different rules apply, governing the provision of the service rather than the quality of a tangible product. The airlines can put transfer restrictions on these.

Software licensing is a whole other sticky can of worms. Here, you're buying physical product (if you buy a disc), but one that is very easily duplicated. The End User License Agreement (EULA) of most software basically states that you aren't buying the software per-se, but a license to use it. Whether you think that's bullshit or not is pretty much dependent on where your thinking is on the ownership of non-tangible products in a digital economy that permits effort-free copying.
posted by Happy Dave at 5:15 AM on June 11, 2010

I'm not a lawyer either, but I'd say that regulations limiting our ability to do as we please with something we've purchased are about protecting others from potential harm, whether economic, physical or emotional.
posted by Short Attention Sp at 5:37 AM on June 11, 2010

With software it's a murky area. In theory the First-sale doctrine allows you to sell software just like any other property, provided that you destroy all copies. The uncertainty comes with the fact that most commercial software products come encumbered with licenses that dictate terms above and beyond those that are established by copyright, which further limits your rights to transfer the software. Whether or not these licenses represent enforceable contracts is still a matter in dispute.

So the heart of the issue is clear: you're not just talking about property, you're talking about additional terms spelled out in a contract. It's the same thing with airline tickets -- they have fine print that stipulate the conditions under which the ticket may be used, forming a contract, and agreeing to those terms is a condition of purchase. The laws regarding contracts is pretty old and well-established and as long as certain conditions are met (e.g. no one is deceived) then they are binding, and there's really not anything that a consumer rights law can do about that. There's also no law that says airlines have to offer their services without a contract, so in this case they pretty much hold all the power.
posted by Rhomboid at 5:44 AM on June 11, 2010

This actually turns on contract law, not any theory of "rights". The thing with contracts is that they can basically say whatever the parties want.

For example: you generally cannot be sued in a jurisdiction with which you have no contact because the court lacks what is known as personal jurisdiction. So if you are a private citizen and live in New Jersey, it's going to be very, very difficult to haul you into court in California. It'll be easier to get you into court in New York, especially if you work there, but that's still going to take more work than just suing you where you live.

But contracts frequently contain what are known as "choice of law" provisions where the parties agree that disputes related to the contract will be settled in a particular venue. They may even require the use of a mediator or arbitrator rather than a traditional adversarial lawsuit. The courts will honor these agreements, because the theory is that even though a court can't force you to show up if it doesn't otherwise have jurisdiction over you, you can decide to show up in court anywhere you feel like it. So if you agree to show up in a contract, a court is going to enforce that agreement.

So with airline tickets, what you've got is a situation where the airline will not consent to sell you the ticket unless you agree to refrain from reselling it. The airlines are capable of imposing these restrictions, so why wouldn't they?

There are limits to the terms merchants may impose upon consumer contracts, but these rarely turn on an issue of "consumer rights."* Instead, courts will occasionally invalidate particularly onerous terms in consumer contracts because they violate the basic doctrines of contract law, i.e. there is no meeting of the minds with regard to terms** or there is inadequate consideration to support the agreement.*** The courts will also not permit companies to use contract as a way of getting around things like anti-trust laws or environmental regulations. But courts only rarely invalidate contracts as being contrary to the public interest. The presumption that people and corporations have the ability to enter in to freely-negotiated contracts without court is so strong that it takes a truly glaring violation of public policy for the courts to step in.

But the idea that you, as a consumer, have the right to do whatever you like with things you pay for is simply incorrect. Sellers also have rights, and these include the right to restrict your ability to do certain things with their product. Balancing those rights against each other is something that, in the absence of applicable legislation, the courts are perfectly content to let the market work out on its own.

*Except in New Jersey, but they're crazy in more ways than one.

**Unfair surprise, but this is pretty difficult to establish.

***Courts routinely invalidate contracts based upon token or illegal consideration.
posted by valkyryn at 5:50 AM on June 11, 2010 [3 favorites]

You're question is about laws, not rights.

The examples you cite are contractual agreements between you and a service provider. They are not physical things like a watch or book.
posted by dfriedman at 7:21 AM on June 11, 2010

A merchant/manufacturer can add any restrictions they want to a product without negating consumer rights as long as they tell you what those restrictions are. If you look on the fine print of tickets or software the EULA is printed which explains everything. Sometimes the restrictions aren't easy to find - they might be buried on a website, for example. Sometimes well-known government regulations restrict the merchant's ability to do things a certain way.

As a consumer, you should either read or understand those restrictions before you buy. If the merchant/manufacturer failed to tell you those restrictions then there would be an issue especially when there is an assumption that something was supposed to provided that wasn't.
posted by JJ86 at 7:37 AM on June 11, 2010

Here's one theory. It's a very textbook explanation, and I'm basing it on not knowing all the institutional details of the thing itself. But this is the kind of example I would give my students in an introduction to microeconomics class.

Ordinarily, "transferable property rights" is a critical and necessary attribute of well-defined property rights. Making objects transferable is what allows markets to move those resources to their highest use. So at first glance, one might deduce that making these things "non-transferable" could be a source of considerable inefficiency.

But, I suspect that it's actually a form of what is called price discrimination. Briefly, monopolies are inefficient in large because they charge a single "uniform" price for their product. They do this because they are unable to charge multiple prices for the same product. Say that there are ten consumers, and the first person would at most pay $10 for a ticket, the second $9, and so on. To maximize profits, the monopolist will choose a price such that the marginal revenue she gets from another ticket sold is equal to the marginal cost of producing said ticket. If the marginal cost of each ticket is $2, then we could calculate that optimal price by calculating how much total revenue changed when another ticket was sold. For instance, if the monopolist charges $10, she'll sell one ticket (as only one person is willing to pay $10), and total revenue is $10. Here's the math to be more transparent:

1. $10 x 1 ticket = $10 total revenue
2. $9 x 2 tickets = $18
3. $8 x 3 = $24
4. $7 x 4 = $28
5. $6 x 5 = $30
6. $5 x 6 = $30
7. $4 x 7 = $28
8. $3 x 8 = $24
9. $2 x 9 = $18
10.$1 x 10 = $10

Notice the pattern. Total revenue forms a parabola with uniform pricing, rising for tickets sold 1 through 5, flattening at 5 and 6, then falling thereafter. This is caused by the fact that when the monopolist tries to sell an addition unit, two things happen. She lowers the price in order to sell that additional unit, and that lower price is paid both by the marginal consumer AND each of the previous customers. Why would person 1 pay $10 if the price is $9? So, lowering the price causes revenue to fall through a "price effect", but lowering price also causes revenue to increase through a "quantity effect" (ie, the additional sale).

To find the price she will charge, we equate marginal revenue from an additional ticket sold to the marginal cost of production. Here's the marginal revenue of each unit sold.

1. MR= $10 because when the monopolist charged $10, total revenue went from $0 to $10.
2. MR =$8 (because total revenue goes from $10 to $18)
3. MR =$6
4. MR =$4
5. MR =$2
6. MR =$0
7. MR =-$2
8. MR =-$4
9. MR =-$6
10.MR =-$8

So notice the pattern here: total revenue is a parabola, and so its slope is always falling. In fact, when the parabola reached its peak, marginal revenue was zero. So, if the marginal cost of another ticket is $2, then the monopolist will maximize profits by choosing to produce where marginal revenue equals $2. That's at the point where 5 tickets are sold. To sell 5 tickets requires charging a price of $6. If she wanted to sell a sixth ticket, she'd have to lower the price to $5. But note that the marginal revenue she'd get from that additional ticket would be $0, but marginal cost is $2, thus causing her profits to fall.

Well, this outcome while being "best" for the monopolist is technically inefficient. Notice that the marginal cost of producing a ticket is $2, but she is only selling to five people. Yet the sixth person values the ticket at $5, the seventh at $4, the eighth at $3 and the ninth at $2. When a person values an object more than it costs society to produce, yet they do not exchange, the outcome is "inefficient".

So why does this happen? Technically it happens because she is charging one price for all customers. Why then is she charging only one price? Why not charge them different prices? Here's where it is relevant to your question. If she charges different prices to different people, but they can trade with each other in a "secondary market", then why would anyone ever pay the higher price? For instance, say I am the one who is willing to pay $10 and you are the one who gets the good at a lower of price of $4, but she wants to charge me $10 and you only $4. Well, theoretically, you could buy it for $4 (as maybe it's only worth $4 to you, at most), and I could pay you $5 for it in a secondary market. You'd be better off ($5-$4=$1 better off) and I'd be better off ($10-$5=$5). But this defeats the purpose of what the monopolist would want to do, which is make the secondary markets non-transferable.

So, if the monopolist can figure out a way to naturally segment the market into multiple smaller markets, and then charge those people different prices, ironically - and this is the weird result - the monopolist can on her own eliminate the inefficiency. But it requires that there be no trades in the secondary market. There are a lot of different ways to do this. For instance, you can tie "service" to the product, and service is really not transferable even if the product is. Or you can make it a rule that no one transfers their ticket to someone else.

Once the monopolist figures out some way to do this, she can charge different people different prices, rather than the uniform price, which both increases her profits AND allows more people who value the good more than the cost to get the good. It expands production, in other words, without causing profits to fall, which was the problem before with uniform pricing.

In airline pricing, there are different prices being charged to different people all the time. For instance, business travelers will get higher prices, prices closer to the scheduled flight are higher, etc. By making these non-transferable, the airline is able to charge those people with higher willingness to pay higher prices, but also they are able to charge those people with lower willingness to pay lower prices. It's the second point that we often forget when we argue that this practice is unjust. If airlines didn't price discriminate, they'd simply charge one price, and it would be a higher price than we already pay, and those with the lowest willingness to pay would be out of luck and may not fly at all. It would actually help those people with a higher willingness to pay, ironically, as it would lower their prices, while raising the prices for everyone else.

Sorry that was a lecture! I can do this much better with a chalkboard and maybe an excel spreadsheet! :)
posted by scunning at 7:58 AM on June 11, 2010 [3 favorites]

I agree, it's likely a form of price discrimination... but why the ECON 101 lecture?
posted by speedgraphic at 9:23 AM on June 11, 2010

Sorry about the econ 101 lecture. I lack the ability to communicate economic principles clearly without a chalkboard.
posted by scunning at 9:29 AM on June 11, 2010

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