Airline oligopoly advances as American and US Airways announce merger.

    Generally, the dilemma faced by an oligopoly is to compete or cooperate with its competitors because there are only few firms due to high entry barriers. Hence, firms consider their reactions to the rivals systematically. Once they cooperate, a high capacity monopoly exists. Accordingly, the consolidation happened when American Airlines are in bankruptcy. So, United has merged with Continental, Delta with Northwest in a short period. These “alliances” dominate the transportation markets with maximizing output and minimizing cost. Since they merged, they supply a comprehensive network from the main places of a country. This’s owing to the corporate travel market and the increase of monopoly’s capability. In the long-run, Airlines prefer to sign contracts because it insures down revenue and assures high fixed cost business. Undoubtedly, this temptation is earning supernormal-profits.

The main organization for these alliances are Star Alliance, Sky team and One World.    

 

     Oligopoly firms focus on intangible dimension. Therefore, their strategy emphasizes on customers’ perspective. These Airways already have the ability to operate a joint between New-York and London by offering high quality services.

     Conclusively, US can be expected to exit. Each airline merges are affected by labor practices, fleets, and staffs. Thence, these two networks will operate separately in the future with their own private policy.

 Source:  http://www.americanthinker.com/2013/02/airline_oligopoly_advances_as_american_and_us_airways_announce_merger.html

                                                                                                     Entry by, Tan Yi Wei