Market Structure of Airlines

Topics: Supply and demand, Economics, Microeconomics Pages: 6 (1958 words) Published: April 29, 2011
Market Structure of Airlines including a Market Structure Table

Each business that operates provides goods of some nature, public, private common resources, or natural monopoly. To provide these goods to consumers and make money businesses are subject to Supply and Demand costs of labor as well as the Market Structure of its competition. Using knowledge in all of these aspects of economics it is apparent that Airlines are subject to these factors as well, how the economy works can be analyzed easier when taking a look at its components rather than the economy. Analyzing Market Structures by Types of Goods

One way of differentiating between market structures is to compare and contrast them; public goods, private goods, common resources, and natural monopolies are a good place to start. Public goods, private goods, common resources, and natural monopolies all provide some type of products or service to people. Private goods are both rival and excludable, which means that when an individual consumes a unit of a good another cannot consume it and that to consume the good it must be paid for. Private goods have similarities to common resources and natural monopolies. Private goods and common resources are both rival; and natural monopolies sell rival products. Public goods have similarities to common resources and natural monopolies as well because they are not excludable. For instance, drinking water that is not bottled is usually something one can obtain without payment. Although natural monopolies are mostly consist of private goods, a natural monopoly like Walmart provides drinking fountains just like community centers (public goods). Nature also provides common resources like a running stream for people to drink water without consumer’s payment. The differences between these structures are more pronounced more than the similarities. Public goods and private goods are the opposite of one another. Private goods are rivalrous and excludable whereas public goods are non-rivalrous and non-excludable. A good example of a private good would be airlines. Once a person purchases a ticket in his or her name, it is his or her ticket; also a seat must be paid for to obtain it. One way to remember the differences between market structures is by noting that private goods and natural monopolies are most alike and public goods and common resources are most alike. The Market Structure used by Airlines

When flying to any destination in the United States travelers face prices established by an Oligopoly. The defining characteristics of Oligopolies discussed by R. Hubbard and A. O’Brien (2010) are a Market Structure where there is little competition between companies and the barriers of entry are low. Using the Market Structure Table (below) the characteristics of different Market Structures are apparent and it is observable how airlines stand. It is apparent that there is a small number in which to buy tickets as the top nine airlines carry over 88% of the United States domestic passenger market share (Herbst, n.d.). Few organizations holding such a high market share give them status as an oligopoly as well as the ability to limit competition creating a barrier of entry into the market itself. “The U.S. government removed restrictions on the nation's airlines in the late 1970s, sparking wave after wave of new entrants and leading to dramatic declines in ticket prices. But in recent years, a few major airlines, along with one former upstart, Southwest Airlines Inc., have asserted control” (Zachary, 1999, para. 24). The government had removed a barrier of entry, which did permit more competition until the larger airlines gained enough market shares, in the end reaffirming the oligopoly market structure.

Market Structure Table

| |Perfect competition |Monopoly |Monopolistic Competition |Oligopoly | |An example of an |Soybean Producers...
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