Paper 1

Topics: Airline, Oligopoly, Price discrimination Pages: 0 (2320 words) Published: September 7, 2014
IB Economics HL Commentary
 

IB Economics Commentary

 
Commentary Number: HL Number 2
  

Title of Extract: Airline Competition 1980-2010 R.I.P.
  

Extract Source: The Travel Insider

  
Date of Extract: Originally published 12 Mar 2010, last update 28 May 2011  

Commentary Word Count: 747

  

Commentary Date: 2nd September 2011
 

Section of Syllabus to which the Commentary relates to: Section 2
(Microeconomics)  

 

Session: May 2012

 
Session Number: 4007
 

The Reality of Airline Market Dominance
When is a market 'dominated' by one (or more than one) airline(s) and when is a marketplace fairly competitive? We quote the generally accepted definitions of oligopolies and monopolies in part one of this article series.  Basically, any time four (or sometimes more; and of course, definitely if fewer) companies have 50% or more of a market, this is probably an oligopoly, and if these four (or fewer) companies control more than 80% of the market, it is most likely a monopoly (even though more than one company is present). US market statistics

So how do the US airlines stack up against this measure?
Using the excellent Bureau of Transportation Statistics, we see the following results for US airlines :

The four largest carriers have 60.1% of the total market (in terms of passenger miles flown) and so, on the face of it, seem to be in an oligopolistic situation. Interestingly, if the merger between Northwest and Delta had not been allowed to proceed, the four largest carriers would then be AA, DL, UA and CO, with a 51.8% market share between them - right on the cusp of becoming an oligopoly.  The DL/NW merger, between the formerly second and sixth largest carriers (as measured by passenger miles flown) has now cemented the assumption in place that the airline industry is oligopolistic. The previous major merger - between US Airways and America West - resulted in the new merged carrier taking the sixth...
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