The Oligopolies of Airlines

We all know it but we never give it much thought: the big oligopoly that is the airline industry. But how does it really work, and why doesn't it always work?

If you've ever been on a commercial flight, you've probably noticed that the windows don't line up with the seats most of the time. This is because the companies that make the planes do not install the seats, therefore the airline has the opportunity to cram more seats into the plane at will.

If all airlines used this strategy on the plane, they could monopolize the industry by forming an oligopoly. However, the collusion is not always guaranteed. One airline may try to take advantage of their trust by appealing slightly more by reducing prices, therefore getting a majority of the customers to themselves. This would in turn make airlines all reduce their prices to match, which would create less profits for everyone in the long run.

In addition, airlines could also profit from the mistakes of other members of the oligopoly, such as United which recently had a violent incident that went viral with a paying customer on the flight.

Comments

  1. AnonymousApril 20, 2019 at 11:13 PM

    I find it really interesting to see how so many of the smallest details of an industry, such as seat placement on an airplane, are affected by the collusive dynamics of an oligopoly. Every single cent counts, especially in tight competition, and I guess big companies are going to do whatever they can to save every last one, if they can.

    ReplyDelete
  2. AnonymousApril 22, 2019 at 12:21 AM

    Nice post! The American airline industry is arguably an oligopoly, as the four major airlines (American Airlines, Delta, Southwest, and United) fly about 80% of all domestic passengers. Furthermore, the U.S. hasn't had a new passenger airline enter the market since 2007, showing that there is a significant barrier to entry. It's very likely that these four airlines collude with one another, as recent increases in prices have coincided with a decline in service quality for all airlines involved.

    Source:
    https://www.investopedia.com/ask/answers/011215/airline-industry-oligopoly-state.asp

    ReplyDelete

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