Cha-cha-cha

It seems to me that classical economic market logic invalidates the above arguments. If there are last minute $200 seats available, there is going to be keen competition for them, meaning that it will not be the case that "the chances are that if they [the passengers] wait a day they could get it for $200?" If there are 3 $200 last minute seats available, there will be 12 passengers who want them, and only the lucky 3 who get in line first will get them. So what passengers will learn is that if they wait until the last minute, they are not likely to get one of the cheap last minute seats.

Similarly the logic of the market would seem to refute the second objection. Due to competition for the scarce $200 seats, full fare passengers could not have a reasonable expectation that they could "change to the last minute cheap seat at the last minute, at no loss on their refundable fare." They would be gambling that they could do this, and the odds would probably not be very good. Nor does it seem true that there's no down side to such arbitrage attempts: the down side is that buying a fully refundable fare so you can cancel it if you luck out and get a cheap last minute seat means that you've foregone the opportunity to buy a cheaper non-refundable or partially-refundable seat and just use it. And are there really any fully refundable fares -- with no change fees at all? Change fees of any sort would serve as a further disincentive to attempting such arbitrage.