What can airlines do to stand out in the oligopolistic airline industry?
Rivalry exists in the airline industry as there are several airlines operating at many of the same destinations all around the world. They aggressively compete with each other through offering different services, cutting fares, offering frequent flyer programs and other benefits to gain more consumers than other competitors.
Economy of scale means a decrease in a firm’s long term average costs as the size of the operation increases. The more units a company can produce, each unit costs less because fixed cost are spread out over a larger quantity. An airline company ...view middle of the document...
Initially, these agreements were formed to combine flight systems so that passengers could travel to more places. These alliances could include everything from sharing profits and employees to pooling resources to share the cost of buying additional planes without actually merging companies.
Mutual dependence is when there are few competitors in a market so any change in price or service would directly affect the other company’s sales or revenue. For example if one airline cut their prices to gain a greater share of the market other airlines might be forced to reduce fares or risk lost revenue due to a decrease in ticket sales. If one airline offers an addition services, possibly allowing additional luggage for example, other airlines might add that’s service to stay competitive.
Price rigidity and non-price competition is a market situation in which competitors would not want to lower ticket prices for fear of a price war. Instead they focus on advertising extensive promotions to highlight the benefits of their customer services, including frequent flyer miles, meals, in-flight services, additional luggage,...