This article is about whether the America’s biggest airlines have colluded. On July 1st the lawmakers and consumers have advocated for investigations into whether the airlines, has boost prices, limited the number of tickets they sell and etc (Harshell). Consumers has suffered by rising fares and other added charges that seem to be the result of excessive market power concentrated in too few hands and potential misuse of that power (Harshall). The Justice Department has investigated whether the America’s biggest airlines have colluded to keep airfares high, striking at an industry that has posted record profits recently while limiting routes and affordable seats (Harshall). A series of bankruptcies and mega-mergers over the past decade has …show more content…
America’s biggest airlines have colluded because of one of the assumption that oligopoly has, which is the interdependent behaviors that they make decisions such as how much to produce they do not take the possible actions of other firms into consideration. Also if any one of the firm changes its prices, this can have a major impact on other companies. In addition, firms that are in oligopoly have an incentive to collude. By doing this, the colluded firms, the firms will have no competitors to enter the market. Therefore, the firms do not have to set their price to be competitive in the …show more content…
Such airline companies have colluded, set the minimum price of the tickets high and limited the number of tickets they and sell much higher than the point of equilibrium to raise their profit margin. Now the firms are free to set prices and maximise their profits. Competition becomes less prominent, demand becomes elastic because consumers can no longer purchase tickets anywhere else. Therefore, consumers continue to buy the tickets even though the price has increased.
Now the customers have to pay more. Therefore, linking to the graph the consumer surplus would decrease, producer surplus increases. The price has increased to the colluded price which is shown on the graph. The consumers surplus has decreased and the producer surplus has increased. Since the producers are having a better off, consumers are worse off it creates deadweight