The United States airline industry is one of the many oligopolies in our country. As we learned in class, an oligopoly exists when a market is controlled by a small group of firms, and in the case of the US airline industry, there are four major domestic airlines. American Airlines, Delta Airlines, Southwest Airlines and United Airlines fly about 80% of all domestic passengers. And collectively, they take up almost half of the market share.
The U.S. hasn’t had a new passenger airline since 2007, and the four powerhouse airlines have been growing their names ever since. Consumers are forced into an uncompetitive market with collusive behavior and are paying high fares as it is the only option. These airlines treat their customers poorly because truthfully, they can afford to do so. As the top airlines are the most convenient for flights, there is really no other option for flyers.
This behavior has not gone unnoticed. There have been many lawsuits and investigations into this industry to really find out if what they are doing is legal. The U.S. domestic airlines have been sued for collusion charges. This did not last long, as the charges were quickly dropped because they were not explicitly colluding. The companies just worked together to essential give certain airlines a local monopoly on certain routes by avoiding competition. This then allows that airline to completely dictate prices on these routes. The Department of Justice (DOJ) also launched an investigation on the industry looking at whether airlines have been communicating with each other through shareholders and discussing strategies, but the case lead to nothing significant.
So as of right now, this oligopoly in the sky continues to fly high.
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This is a cool real world example of oligopoly. I don't typically think of Airlines as oligopolies because there are so many of them, but it makes sense that AA, Delta, Southwest and United are responsible for a majority of US flights. However, I believe that if you looked at international flights, the industry may be less resemblant of the oligopolistic industry and more resemblant of the monopolistic competition industry as there are more firms and it is more difficult for a firm to enter the industry.
ReplyDeleteThis article does a great job giving a real life example of an oligopoly that we see a lot. I do agree that there is an oligopoly in the sky as you really only see the main airlines at airports. If you even back up further in the airlines industry, you also see that almost all airlines are part of an alliance which is also an oligopoly. You have 3 main alliances which are Oneworld, Star Alliance, SkyTeam who take up a combined 61.2% of all scheduled traffic in revenue passenger miles.
ReplyDeleteThis is an interesting article that does an awesome job on teaching about the oligopoly that is the airline industry. You stated the companies worked together to give airlines a local monopoly on certain routes. This seems like collusion to me and I would be lead to thought that it is illegal. The point about the DOJ investigating and failing to find anything reminds me about what we learned in glass about Google. I remember that people such as the FTC have tried to launch investigations on Google and always came up short. However, in the case of airlines, it seems as if they have a better chance of performing illegal business tactics, and I would not be surprised if collusion was one.
ReplyDeleteI like how you mention that the airlines can afford to treat customers badly because of their power over the market. In the news recently, there have been a lot of stories about airlines severely mistreating passengers, but many people still fly on those airlines because there are so few other options. However, when you go to an airport you see a bunch of different airlines. Are they all owned by a few big companies?
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