This is to demonstrate the usefulness of the ideas from the last post. When Air Berlin went out of business in 2017 the prices for Lufthansa flights increased substantially (up to 30%). I have this from a news article from the ORF from the 26th of November 2017. Lufthansa, according to this article, claimed that this has nothing to do with them, it is simply a question of an increase of demand and as a consequence that their automated ticket booking system simply more quickly leads to higher price categories. Apparently Lufthansa uses up to 26 price categories (for the same seats). Which category you get depends on when you book your ticket and how full the plane is already and possibly some other things. This is actually a topic for another class – on price discrimination. But let me here only explain in which sense Lufthansa’s statement is right and wrong at the same time, or at the least on how one should perhaps read their statement.
One should differentiate between the demand for a good generally and the demand for a good from a particular producer. Think about the market for holiday apartments in Upper Styria (at some time of the year). As we discussed before we would expect that the demanded number of apartments will depend on the price of these apartments, the lower the price the more people would be interested in renting a holiday apartment. I don’t quite know what the slope (or shape) of this demand function is exactly, but we would expect to be properly downward sloping (as a function of the price).