Airline Industry Essay 10

Topics: Monopoly, Competition, Airline Pages: 6 (2120 words) Published: November 29, 2009
It is easy for people nowadays to travel around the world because the Airline industry can provide fast and convenient service for the passengers. However, in the world with a lot of competition, it is not easy for the business to survive. In this essay, we will first describe the features of the market which determine its market structure and consider what the best market structure for the International Airline industry is. Then we will move on to the term of non-price competition and the three different ways in which airlines compete for a share of the market. Lastly, we will explain why a perfect competitive firm is unlikely to make supernormal profit in the long-run by using the graph and also discuss why the International Airline industry can make supernormal profit in the long-run.

In economics, market structure is the best describe the type of each organisation with the way each of them behaves in the market. For these market structures, we focus on those characteristics of the firms related to the competition and pricing. Therefore, when economists determine the firm’s markets structure, they will look at its characteristics. These are the key characteristics of the firms’ market structures: ❖ Number of firms in industry- it refers to the number of competitors in the same industry. ❖ Type of product- which are homogeneous, differentiated, or unique. ❖ Ease of entry into industry- It shows the possible level of the firms to entry into the market. ❖ Firms’ influence over price- It means the power of the firms to control over the price. ❖ Consumer knowledge of market- the level that consumer can reach the firms’ information. Now, the major market forms in the difference industries will be analysed: ❖ Perfect Competition: under the perfect competition, there are a large number of buyers and sellers who have free entry to the market. The production of the market is homogeneous and the buyers have full information about that market. ❖ Monopoly: There is only one seller in the market and it is impossible for the competitor to entry this industry. Therefore, the monopolist has full power over the price. ❖ Oligopoly: It is characterised by a small number of the sellers. Although each firm has some pricing power, they could not set up their own price because one firm action can affect other firms. It is also hard for new company to entry into the industry because of the high capital cost. ❖ Monopolistic competition: There are a large number of buyers and sellers and it is easy for them to entry into the industry. However, the products of each company are differentiated. As the characteristic of the market forms above, the Oligopoly is the market structure which best describes the International Airline industry. This means that there are a few numbers of large companies in this industry. The company action can be expected to affect every other companies especially regard to pricing. For example, Thai Airline has the largest market share for the destination from New Zealand to Thailand. It proposes a price decrease from $ 1500 to $1300 on a round trip. Therefore, other companies have to match the lower fare to remain their market share. In this case, we can see that the action of Thai Airline affects other companies in the market. In Oligopoly, there is the cost barrier which make new competitor cannot entry into the industry. In the case of International Airline industry, we can see that the capital costs such as buying aircraft are very high so it is extremely difficult for new firm to entry into this industry. From the description and the example above, we can conclude that Oligopoly can best describe the International Airline.

Now, we move on to the discussion between price and non-price competition for the Airline industry and three different way in which airline compete for its market share. Price competition is a marketing strategy in which company uses to...
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