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The merger of United and Continental Airlines provides a great case study for understanding how oligopolistic markets work. This article focuses on the New York market, especially for long distance flights.

Its airports — Kennedy International, La Guardia and Newark — play a critical role in both domestic and international travel. Combined, they account for four of the top five domestic routes and constitute the biggest hub in the country for international flights.

“It’s the most contested market there is,” said Gail Grimmett, the senior vice president at Delta Air Lines in charge of New York. “That’s because it’s the largest revenue pool.”

The merger gives the new company a dominant position with these markets, allowing them to upgrade facilities with the promise of higher ticket prices.

All the competition for the New York market has kept air fares relatively low so far. But analysts cautioned that if an airline becomes too dominant at any one airport, there would be less pressure to keep the lid on prices. Such concerns could raise antitrust issues for United and Continental’s planned merger.

While higher ticket prices are a negative signal for antitrust regulators, there are advantages to allowing decent profits for more dominant firms. The obvious advantage here is the better facilities and service for the long distance flights. Of course, with airlines, you don’t want competition to be so severe that airlines feel pressure to reduce expenditures on maintenance and safety.

For the economics student, the real interest here is in watching how the market reacts to the new shift of power in this market.

William S. Swelbar, a research engineer at the International Center for Air Transportation at the Massachusetts Institute of Technology, said New York was a major laboratory for the alliances.

“New York is vital for each of the three alliances,” he said. “It’s a global game, and it is playing right in front of us.”

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4 Comments

  1. From my point of view,this case is a little bit like School management,some schools are public school,the tuition fee is cheap ,and of course the facility and the school service is normmal ,or worse than the pravite school.but I think it cannot be a monopoly market.For the flight ,some people do not want to pay the high price for the good service.

  2. High price might not be such a bad thing for both consumers and companies,as we got more comfortable trip and firms can gain profit to enhance their service. The ralationship between Those oligopolies can be very hard-to-tell as they can be collusive with each other while try to steal other’s travellers.

  3. I think quality can be one of the USP(unique selling proposition) but since quality is only an augmentation of the actual service of transportation therefore a high price cannot survive for long.
    The latest trend shows extremely low prices such as with offers of only 10Kg allowed per passenger, every other 10Kg adds money.

  4. Whats the end…. its not clearly defined… em so confused and cant sleep 3 nights…


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