After airline mergers, the four remaining airlines had an increased level of market power

Marketing Jan 14, 2021

After airline mergers, the four remaining airlines had an increased level of market power. For consumers, this meant that they had to pay:

a. higher prices, regardless of consumer demand.

b. lower prices, regardless of consumer demand.

c. the same price because airfares were not impacted by market power.

d. higher prices, but only for business class travelers.

Expert Solution

Option A (higher prices, regardless of consumer demand) is correct.

Reason:

It is because increased market power will make given more power to the suppliers to influence either market quantity or price. Therefore, with market power airline companies can charge higher prices from the consumer as consumers now have fewer options to switch to the other airline company for booking tickets.

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