|Subject||Barriers to entry and comparisons with competition|
|Key Words||Takeover, service, merger, deregulation, consolidation, fares, prices, competitors, markets|
United Airlines has proposed to purchase US Airways for $4.3 billion. The deal would create an airline that would carry one-fourth of all airline passengers in the U.S. The airlines assert that the takeover will actually improve customer service. They believe that they would be able to provide more routes in the East and seamless international service. This plan has already provoked merger talks between the other airlines.
Consumers and Congressional members are not so sure that service would improve. Since 1978, when the airlines were deregulated, there has been a significant consolidation of airlines. Many travelers now experience high airfares, long check-in lines, uncomfortable journeys, delays, and tasteless meals (if any). Studies demonstrate that fares are higher at hubs dominated by few carriers. Some airlines have been accused of illegally driving small competitors out of some markets. Customer complaints are rising, and have prompted airlines to issue voluntary standards. There is a fear that fewer airlines will mean less competition for the passenger's dollar, and that prices will increase even more.
United is trying to dampen criticism. It promises not to raise fares for two years unless its costs, especially fuel costs, increase. US Airways says it will sell its operations at Reagan National Airport in Washington, D.C. to DC Air so as not to dominate the area. However, this may be a ploy to keep the gates out of the hands of its major rivals, and DC Air would still rely on United for all services from ticketing to maintenance.
(Updated August 1, 2000)
|Source||Laurence Zuckerman, "A New Math: Fewer Airlines + Higher Profits = More Competition," The New York Times, June 22, 2000.|
Return to the Monopoly Index
©1998-2001 South-Western College Publishing. All Rights Reserved webmaster | DISCLAIMER