When an airline reduces its fares, other airlines typically match the action. But when an airline increases its fare, other airlines do not follow suit. Which oligopoly model cartel, price leadership, or kinked demand best fits the airline industry as described? Justify your choice and explain why the other models are less appropriate
The interdependence fits the kinked demand model, where firms match price cuts but not price increases. With cartels, firms agree on price and market share; there is no discussion of firms not matching price increases or decreases. With price leadership, one firm sets price and others follow, whether up or down.
You might also like to view...
Currency traders expect the value of the dollar to fall. What effect will this have on the demand for dollars and the supply of dollars in the foreign exchange market?
A) Demand for dollars will increase, and supply of dollars will increase. B) Demand for dollars will decrease, and supply of dollars will decrease. C) Demand for dollars will increase, and supply of dollars will decrease. D) Demand for dollars will decrease, and supply of dollars will increase.
President George W. Bush, who favored a smaller government sector,
A. believed we should increase G to eliminate a recessionary gap. B. believed we should raise taxes to eliminate an inflationary gap. C. favored an active fiscal policy just as well as those who favor a larger government sector. D. argued against the use of an active fiscal policy.