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Letter Of Response Essay

765 words - 4 pages

Airline Industry The airline industry has seen many changes in the past, and currently contunies to change. During the regulatory period of the industry, consumers faced high prices forced on them by the tight regulation of the Cival Aeronautics Board (CAB). After government regulation was eliminated consumers benefited from lower fares and increased sensitivity to consumer prefrences. The result of this sensitivity was more price and service options made available to the public, such as frequent flyer miles. Presently the industry is evolving into a price maker industry as it was during regulation. As with any market with high barriers to entry and exit consumers could be adversely ...view middle of the document...

At this time other industries such as railroad, and motor transportation were regulated. Congress believed this was unfair because the airline industry was free of governmental constraints. Since airlines could set their own prices there were fears of anticompetitive pricing. Airlines had the freedom at this time to make flying cheaper than other transportation methods thus gaining market power? Congress felt that this interindustry anitcompetitive pricing and competition in the airline industry mad flying unsafe. In order for airlines to compete with each other, prices were set low but in order to maximize profit the airlines would have to cut costs. After a series of crashes congress saw the financial instability due to competition, the cause of these crashes and stepped in to regulate. The lack of safety was believed to be because of cost cuts as a result of competition. Despite that the prices were socially efficient the lack of safety and interindustry competition put this the airlines in the governments control. During regulation the industry structure resembled an oligoploy. Although under the control of the CAB, airlines would cooperate with each other and ask the CAB to raise prices. No single company dominated 100 percent of market concentration, but the lack of...

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