There is a difference between Surplus and Utility. I think there is a case to be made that this practice increases Consumer Utility and trades it somewhat for Producer Surplus...but generally speaking, Price Discrimination increases Producer Surplus (thereby reducing Consumer Surplus).
Price discrimination does not necessarily reduce consumer surplus. In this case in particular, there is a large surplus being created by the fact that planes fly more full, and I don't know any reason to think that consumers don't capture much or most of this .
I would be interested to see how you would graph price discrimination not reducing consumer surplus. Price Discrimination in itself is about redistributing surplus from consumer to producer.
> a large surplus being created by the fact that planes fly more full
I think you are conflating surplus with utility. Full flights have more utility than not full flights...but the market surplus available is unaltered.
Maximizing utility is not a bad goal to have...but it is distinct from Consumer and Producer surplus.
> I don't know any reason to think that consumers don't capture much or most of this .
Because in general most of the surplus is captured by the Producer and the producer doesn't have any incentive to redistribute it back to the consumer. Not having an incentive doesn't mean they don't, I am just pointing out airlines aren't incentivized to reduce the seat cost of a late purchaser by the amount of the cancellation fee for the person that cancelled their flight...or even offer the seat at the price the original person paid.
Anecdotally (as mentioned in my other comment) we can compare United to Vrigin. Let's assume that a whole bunch of "surplus" is created by overbooking. United overbooks, Virgin does not. If the consumer captures most of this than United flights should be cheaper than Virgin ones in almost every way (ticket price, bag check fees, cancellation provisions, etc.). I fly from SFO-PDX twice a month. Virgin America consistently has lower priced fares than United.
This is observational and anecdotal...but the result casts doubt on the hypothesis that the consumer captures most of the surplus generated by overbooking. Admittedly, I wouldn't expect the consumer to do so from a purely theoretical stand point .
> I think you are conflating surplus with utility. Full flights have more utility than not full flights...but the market surplus available is unaltered.
Utility is quantity that is measured with respect to an individual (subjective), whereas surplus is an objective measure. This is but one difference, and I am not conflating them. Fuller flights (less dead-weight loss) means there is more surplus to go around, and which will in general be divided up between the buyers and sellers.
I could say similar things about your understanding of price discrimination. My guess is that most of your confusion comes from thinking in terms of an idealized model where prices are dominated by marginal costs, whereas fixed costs for planes are very large.
This can all be inferred from the definitions you link to, you just haven't internalized them.
