An analysis of oligopoly in s airline industry Oligopoly is form of market characterized by presensce of few sellers who maximize their profits

by producing to their extent of making marginal cost equal to marginal rewvenue.following are the features of oligopoly: 1)in oligopoly,suppliers opertaEs with profit maximization objectives. 2)there are able to set prices. 3)there are high entry and exit barriers in terms of economics of operations,usage of high end technology etc. 4)there is product differentiation in the market. 5)there is interdepndance among firms. An example of real life industry operating under oligoloy is, airline industry .the below mentioned data related to US airline companies gives an insight into the fact that airline companies operates under oligopoly: Airline domestic market share November 20009-october2010 Airlines: market share(%) Delta :15.8 Southwest: 14.0 American:13.7 United: 10.2 US airways :7.9 Continental:7.4 Data source : www.transtats.bts.gov The above mentioned six airlines have more than 70% of the market shares in domestic airline in USA.the domestic airlines industry in US meets most of the features of an oligopoly market. The airlines industry in US does not operates under any of the four models i.e. Sweezy model, cournot model,stackelberg model or Bertrand.the explanation for this as follows: Sweezy model:one of the key assumptions of sweezy model is that firms oprating under this model react to pricw cuts by rival firms while they do not respond to increase in the price by rivak firms.this is not the case in US airlines industry as there is product differentiation in the airlines market.this result into

price differentiation logically.the price differnriationon Boston to new york route can be as high as the information given below: Airfare:Boston to New york(mar,2011 fare) Name of airlines : air fare Delta :$55 Us airways: $169 Unitedd:$179 Continenetal :$448 Source www.orbits.com Since the price charged by airlines com companies is different, the rival firms don t react to price cuts which are one of the key assumptions os sweezy model. 2)cournot model:under this model,the firms operate based on the expection that its own output decision will not have an effect on the decisions of its rivals.though there is a price diffentiation in US airlines industry but price sensitiveness also prevails.low cost airlines keep a watch on pricing of rival firms and accordingly decrease or increase price.hence the firm is not able to decide its own output levels which is essentially influenced by actions of rivals firms. 3)stackelberg model:under this model leader firm move first and then other firms move sequentially.this is not the case as firms try to outperform each other in airlines business by desiging new strategies.there are different segments within the industry and hence there is no significant impact of moment by leader firm. 4)Bertrand model:US airlines industry does not fit into Bertrand model as well.because as per the model firms complete by setting the prices simultaneously and consumers buy the product from the firms who sell it cheapest.if this was the case,there wont be so much of price differntaion which in case in the example above(see airfare Boston to new york) Article soruce:http://www.saching.com/

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