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Economic Analysis Of Gogo’s In Flight Wi Fi

3443 words - 14 pages

Case Study: Economic Analysis of Gogo’s In-flight Wi-Fi
November 2, 2015
Introduction
Gogo pioneered and now dominates the in-flight Wi-Fi business, which allows passengers to
access the Internet during their flights. In recent years, consumers have grown from anticipation
to dislike towards Gogo’s services due to its steady increase in fees and rapid decrease in speed.
Through a dynamic pricing strategy they hope to relieve congestion which indeed have effect,
but will not last in the fierce competition of an oligopoly market structure. Unlike its
monopolistic position before, Gogo now faces at least three companies—ViaSat, Global Eagle
Entertainment, and Panasonic— swiftly eroding ...view middle of the document...

Thus among general users, Gogo tends to be elastic. When Gogo
increased its prices for its service, most of its subscribers had to stop using Gogo or switch over
to an airline that offered a cheaper price.
The degree of necessity or luxury: Many air travellers view the use of Wi-Fi whiles in the cloud
a luxury rather than a necessity. To them surfing the web, reading their emails and watching
Netflix on the plane is an activity that can wait if they view their price tag quite exorbitant, any
change in price will effect a reaction to demand for in-flight Wi-Fi accordingly. Earlier this year,
Gogo increased the prices of its service from $45 to $60, many of its customers complained and
a number of users stopped using their service, to them demand for Gogo is elastic to the level of
price being charged. On the other hand, among its subscribers, its main users; business travelers

regard this service a necessity rather than luxury. They will pay any price to be able to read, send
emails, and complete their work. Ultimately for these people, their companies foot the bills and
will rather Gogo increase its prices so that the ordinary subscriber using it to surf the web and
post pictures on Facebook will not be able to afford the service. This will reduce the capacity on
the network to give them a better service. They are insensitive to price increments. Among them,
the price elasticity of demand for Gogo service is inelastic. In Gogo’s latest quarterly financial
filing, average revenue per aircraft was up 13 percent from 2014, “driven primarily by
connectivity service price increases,” the report said. Farrar says: “They’ve found that there
really isn’t much limit to what people are willing to pay if they have to get work done on the
plane.”
Another factor that affects the demand for Gogo’s service is the prices of related service. A
major complaint among the users of Gogo is the price it charges for its service. As mentioned
earlier, Southwest airways and JetBlue serving Global Eagle Entertainment and ViaSat
respectively offer cheaper service prices than Gogo. Thus, when Gogo increased its prices the
prices of ViaSat and GEE became relatively cheaper decreasing the demand for Gogo among its
subscribers. According to company data published by Quartz, barely 7 percent of passengers on
flights where Gogo is offered actually buy it.
Substitutes for Gogo’s Service
For Gogo’s service, there is no substitute. A case in point is that people who use yellow taxi as a
mode of transport usually have options: the subway, lyft, walking. If you are on a Delta flight,
it’s Gogo or no access to Internet connection in-flight. “The airlines have plenty of choices”,
says Andrew De Gasperi, an analyst at Macquarie group. “It’s just that the passenger, who is the
one who uses it doesn’t”. Thus, passengers on commercial flights with Gogo as the provider of
Internet service has no substitute to this service.
Market Structure
The market...

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