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Oligopoly airline industry analysis
Airlines business model
Airline industry trends US
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The most recent video about United Airlines “re-accommodation” goes viral. The video creates a trend to boycott the airline. Lucky if you are the rival of United Airlines, the fact is that there is very few of you. United is the only player in many airline markets. Even though a consumer deleted the app, the person has no other choice if only United provide the route he wants. By Statistic Brain, United takes 16% of market shares in Airline Domestic Market. In such situation, what would make true threaten to United Airlines, as a single consumer? As an important structure of the market, United Airlines is one of the Oligopoly. By Pindyck and Rubinfeld, “oligopoly refers to the few player in a market, and they conduct imperfect competition in the market.” In such situation, if one oligopoly decreases product price, all other oligopolies would follow, so they would not lose all market share. If one oligopoly increases product price, other would not follow and the one increase price would lose market share. Therefore, all oligopolies would not adopt price competition, instead, they would keep the price at a relatively similar level. Non-price competition takes place, and they would differentiate the product, provide more service with higher return rate, and provide deals to …show more content…
For those switch cost is low and totally price oriented consumer, oligopolies only able to capture the consumer by price setting, means less profit for the company. Just like economy class passengers that chasing cheap flights in Airline industry. Another type is the loyal consumers, purchase additional services and not only driven by price. In such case, high-end passenger is such kind of consumers. Specifically, this type consumer includes the frequent passengers, business class passengers and first-class passengers. The marginal return of those passengers is high, and the non-price competition works
of price versus service in the airline industry as a whole, as well as, the
Due to the fact that Best Buy is non-collusive, they face a kinked demand curve that ultimately determines the firm’s relative market share. The demand curve consists of an elastic and inelastic portion. Oligopolies avoid both portions, where in the elastic portion, competitors keep prices low to steal customers, and the inelastic portion where price war occurs since competitors also lower prices, resulting in no gain in demand.
This organization belongs to the oligopoly market structure. The oligopoly market structure involves a few sellers of a standardized or differentiated product, a homogenous oligopoly or a differentiated oligopoly (McConnell, 2004, p. 467). In an oligopolistic market each firm is affected by the decisions of the other firms in the industry in determining their price and output (McConnell, 2005, P.413). Another factor of an oligopolistic market is the conditions of entry. In an oligopoly, there are significant barriers to entry into the market. These barriers exist because in these industries, three or four firms may have sufficient sales to achieve economies of scale, making the smaller firms would not be able to survive against the larger companies that control the industry (McConnell, 2005, p.
"Problems" in the airline industry have not risen due to too much competition within the industry. To the contrary, Washington regulators should turn the industry loose in any more ways that it can. Lowering restrictions to enter the market place, emphasizing private ownership of aviation matters, and encouraging open and free competition within the scope of anti-trust law should be the goals of the Clinton Administration. Instead of heading towards re-regulation, Washington should get out of the airline business for good.
In order to measure the impact of United's price increase, we would need the price elasticity of the demand. The main problem is that there is no agreement as to whether, generally speaking, air transportation is or is not relatively price elastic. There is ample evidence that the introduction of deeply discounted fares by the low cost carriers can be very price elastic, although, each type of traveler has its own price characteristics.
United’s Marketing Determining the marketing strategy for a massive airline, like United Airlines, is fairly difficult and extremely complex. Why? Because each city, season, route, and time of day will have some minor to major difference in how the airline presents itself. The difficulty in marketing and advertising for an airline is harder than other industries because each airline is selling thousands of different products. At first glance, United is selling flights, and that seems to encompass one product.
In the Travel Pulse article "Airlines Leaving Us Little Choice – Like A Monopoly," posted by Rich Thomaselli, the practice of monopolization is observed in the airline industry. The author criticizes large airlines on their growth that has led to at “93 of the top 100 [airports], one or two airlines controlling a majority of the seats” (Thomaselli). The scornful article was written after recent events that have caused the Department of Justice and five States to sue two of the biggest U.S.
Oligopolies do not compete on prices. Price wars tend to lead to lower profits, leaving a little change to market shares. However, Oligopolies firms tend to charge reasonably premium prices but they compete through advertising and other promotional means. Existing companies are safe from new companies entering the market because barriers to entry to the market are high. For example, if products are heavily promoted and producers have a number of existing successful brands, it will be very costly and difficult for new firms to establish their own new brand in an oligopoly market.
It is a well-known fact that every firm wants to be successful in its business. Sometimes it is difficult to decide what kind of actions to take in order to achieve it. Especially, it is hard on oligopoly market because this is one of the most complicated market structures. Oligopoly includes many models and theories such as duopoly where are just two producers and which pricing decisions remind monopoly, kinked demand curve, which decreases economic profit, and cartel, which brings economic profit just for the short-run. However, to be a successful oligopolistic firm in the long run, managers should include in the planning process such economic theories and models as producer interdependence, the prisoner’s dilemma, price leadership, nonprice adjustments, and correct using of barriers to entry.
United Airlines aircraft have soared through the skies for more than 70 years. Initially used to transport U.S. mail, the planes soon took on a few adventurous passengers. In a matter of years, air travel was embraced by the general public, creating a demand for larger, faster, more luxurious aircraft.
333-355. Hocking and Waud 1992, Oligopoly and Market Concentration' in Microeconomics 2nd Edition, Harper Educational Publishers, NSW, pp. 315-342. Kathleen Hanser, The Secret Behind High Profits at Low-fare Airlines'. a href="http://www.boeing.com/commercial/news/feature/profit.html">http://www.boeing.com/commercial/news/feature/profit.html/a> [accessed 15 May 2003]
Degree of Rivalry - Very High to Intense – Multiple competitors, high strategic stakes, innovation often easily imitated, and low switching costs for consumers
An oligopolistic market has a small number of sellers dominating market share and therefore barriers to entry are high. These sellers are highly competitive and do not act independently of each other. Access to information is limited so sellers can only speculate of their competitor’s actions. Sellers will take advantage of competitor’s price changes in order to increase market share.
When an airline does not have a sustainable competitive advantage, it does not have any properties of differences from there competitor and turns to a dangerous price war. The sustainable ...
With there being several firms for 3 of the markets, the consumer benefits as they can find the cheapest producer, resulting in the producer being at a disadvantage as they could loose business. In a perfect competition market, the firm is unable to choose the price whereas in an oligopoly the price is chosen by the firm this is beneficial for the producer as it increases their profit margins. However, this is harmful for consumers as they will have to pay the higher prices.