Megan McArdle thinks about the allocation of space in airliners that are increasingly flying tenements (unless you're prepared to pay three adult fares for a drawing room).  First, a history lesson.
Let's recall that back in the good old days of flying, most people didn't. They couldn't; it was far too expensive. An airline flight was something you might do once in a very long while, for a special occasion like a honeymoon or a graduation.

As deregulation pushed prices down, more people flew. After the invention of travel websites, a lot more people flew -- and based their flying decision entirely on price.

The result is what you see today: To stay price-competitive for tourists, airlines have ruthlessly slashed services so that the headline price they see on Expedia will be as low as possible. They've crammed as many seats as they can into the back section, where those tourists sit. And they've used increasingly sophisticated software to make sure that the planes are always as full as possible.
That many of the economy travelers are Wal-Mart people and the business travelers remember Marshall Field doesn't help much.

But there's an economics lesson in the pricing and amenities of the first-class section, and it goes back to the days of those three adult fares for a drawing room.
The premium charged for first class is much more than proportional to the extra space they take up. Which means that folks buying first-class tickets are subsidizing those of us forced to sit back in the bleachers. If first class went away, again, who would lose out? The poorest fliers who can least afford the higher ticket prices.

Yes, this is somewhat complicated by the fact that many people in first class are elite fliers. But again, the elite fliers are less price-sensitive than the tourists -- which means that they, too, subsidize those who shop only on price. You can think of planes as being filled with basically three kinds of people: coach fliers who only look at the price tag; elite fliers, who will pay extra for a seat on their preferred airline as long as the damage is not too bad; and first-class fliers, who apparently have some sort of money tree in the backyard. The latter two groups are the reason that the proletariat gets such good ticket prices. And because the elite fliers do generally have to spend some time in coach, they're also the reason that the airlines don't actually stack the rest of us like cordwood.
In a deregulated environment, airlines have to be careful about extracting too much subsidy from the first-class passengers lest those passengers look into chartering jets, or buying their own jets, or lest some entrepreneur set up a first-class only airline (the business model is similar to my deluxe tickets-priced-by-the-hundredweight suggestion).  Hell, you get somebody to build the Sleepy Hollow legrest seat and install them in 2+2 configuration the way the Mid-Century Empire Builder did and you might have something a venture capitalist will fund.

At the same time, the differences in amenities and the prices of types of seats must be calculated in such a way that the carriage trade will accept the higher price rather than ride in the cheap seats, while the bargain hunters will not pony up the fare for the premium seating.  Part of that calculation involves making the cheap seats unpleasant.
The proper change would have been to have let fares alone, but to have given the present first-class accommodation for the present second-class fare, and then introduced an improved first-class carriage for those whose desiderata are quiet and comfort.  The companies err by not giving enough quiet and comfort for the additional prices which they now charge to first-class passengers as compared with second and third-class.
Graduate students working on industrial economics or regulated industries learn the logic of self-selection in class.  I should think that the space-management systems of airlines (which are more valuable than the planes) are quite up to correcting the error Walter Bagehot noted.

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