merger review for ib economics

Topics: Economics, Monopoly, Competition Pages: 3 (753 words) Published: May 26, 2014


American airlines monopoly or a merger

This article discusses the consequences of a mega airline merger on the American air travel market, which brought upon anticompetitive and monopolistic behavior in this oligopoly. In America the air travel market is an oligopoly- market structure in which there are only a few sellers, the firms are price makers, and there are barriers to entry. Thus, when US airlines and American airlines decided to merge into one giant airline, the problem increased further. Due to high costs it is almost impossible for small firms to stay in business. Looking at it this way, mergers are more actions to survive. Yet, a merger this big is considered an anticompetitive action; this merger will lead to fewer firms on the market and less competition. Loss of competition could lead to the loss of the allocative and productive efficiencies and due to that it can lead to market failure or a monopoly structure. The anticompetitive behavior in this case has the potential to bring both positive and negative consequences. With the merger happening, the market price of an average ticket could be lowered due to the monopoly and increasing return to scale. This appears to be good for the consumers, but at the same time it is bad for smaller airlines that cannot continue on working with prices being so low, so it would lead to even less firms on the market. Also, the AC is very high at this market, due to crises and increase in oil price. A good idea would be having a natural monopoly on this market, as a monopoly can do price discriminations for different groups of consumers, which can help make tickets more available for consumers. Due to high barriers a monopoly can do abnormal profit in the long run. This can be seen as a good thing because firms can use the money to invest into advancement of technologies, but at the same time, better technologies create even bigger barriers to entry....
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