Late in the day on August 7,2006 numerous U.S. ?airlines cut their fares on leisure travelers. These included American Airlines, Delta, Continental, and Southwest. This fare cut, which was approximately 4 to 8 percent, occurred during a period of rising fuel costs and a record number of seats being filled. If costs are up and demand is strong, why did these airlines reduce their pies on this class of passengers? The explanation is that they were following the lead of UNITED. United airlines is the implicit price leader in this industry and many other carriers watch closely what the leader does and base their decisions on the leader's actions. Such behavior is not uncommon in an industry dominated by a few large firms.
What market structure does the airline industry most likely resemble and why?
Indeed, the airline industry resembles an oligopoly market structure. By definition, an
oligopoly market structure is one in which the market is controlled by a small number of...
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