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Price Discrimination in the Airline Industry: the Effect of Market Concentration - Term Paper Example

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This paper seeks to investigate, analyze and discuss the various aspects related to price fluctuations in airline industry with regard to market concentration and establishes a relationship between price discrimination and market concentration…
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Price Discrimination in the Airline Industry: the Effect of Market Concentration
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Download file to see previous pages According to the research findings, it can, therefore, be said that there have been varying opinions about the impact of market concentration on pricing strategies adopted by the firms operating in the airline industry. On one hand, certain theorists use the ceteris paribus clause to explain the phenomenon, claiming that increased market concentration leads to increased instances of price discrimination since the sheer presence of a large number of firms operating in the industry gives immense power in the hands of such firms to implement discriminatory pricing models. While on the other hand, researchers like Borenstein claim that there exists a negative relationship between market concentration and price differentiation, i.e., price discrimination increases as the market competition intensifies e.g. when the market structure undergoes changes from monopoly to imperfect competition. Theoretical analysis carried out by researchers in the recent times, to study the relationship between market concentration and price discrimination, point to the fact that imperfect competition fuels the likelihood of such a wide difference in pricing among firms. Studies show that as a market undergoes a transition from monopolistic market structure towards imperfect competition it has a significant impact on the pricing as well. This happens since prices are highly sensitive towards the form of market and hence more intense the competition, wider the gaps between pricing. In case of monopolistic market structure, the consumers are heterogeneous and hence the firms must segment their markets accordingly in order to cater to their target customers in a better manner. However, as the competition increases, the consumer preferences begin to differ as well. The consumers in a monopolistic market condition differ not only in terms of their tastes and preferences related to a particular product but also differ widely in terms of brand preferences. ...Download file to see next pagesRead More
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