Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 14: Problem 16

(Related to the Apply the Concept on page 489 ) For many years, airlines would post proposed changes in ticket prices on computer reservation systems several days before the new ticket prices went into effect. Eventually, the federal government took action to end this practice. Now airlines can post prices on their reservation systems only for tickets that are immediately available for sale. Why would the federal government object to the old system of posting prices before they went into effect?

Short Answer

Expert verified
The federal government likely objected to the old system due to the potential for market manipulation and unfair competition which could disadvantage consumers. By posting future prices, airlines could influence consumer behavior and drive up demand artificially, leading to price inflation. Therefore, the new regulation promotes transparency and fairness in the market by ensuring that displayed prices are for tickets immediately available for sale.

Step by step solution

01

Understanding the Problem

To solve this, we need to grasp the difference between the old and new system in posting ticket prices, and the potential implications. In the old system, airlines could announce new ticket prices in advance, while in the new system, airlines can only post prices for immediate sale.
02

Identifying the Potential Problems of the Old System

In the old system, by posting proposed prices several days before they were actually applicable, airlines could indirectly manipulate the market by influencing customer's buying behavior. Consumers might rush in to buy tickets before prices increased, leading to a surge in demand that was not naturally driven. This kind of practice could lead to price inflation and unfair competition, which would not be in the best interest of consumers and fair market principles.
03

Understanding the Reason for the Government's Intervention

Seeing the above possible issues, it can be understood that the federal government aimed to promote fairness and transparency in the airline industry by prohibiting the practice of posting future prices. This intervention assures that prices displayed are for tickets that are immediately available, preventing airlines from influencing customer behavior through proactive price announcements.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

How are decision trees used to analyze sequential games?

Michael Porter has argued that "the intensity of competition in an industry is neither a matter of coincidence nor bad luck. Rather, competition in an industry is rooted in its underlying economic structure." What does Porter mean by "economic structure"? What factors besides economic structure might be expected to determine the intensity of competition in an industry? Source: Michael Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors, New York: The Free Press, \(1980,\) p. 3 .

What do barriers to entry have to do with the extent of competition in an industry? What is the most important reason that some industries, such as music streaming, are dominated by just a few firms?

In 2017, Best Buy had the following price matching policy posted to its Web site: At the time of sale, we price match all local retail competitors (including their online prices) and we price match products shipped from and sold by these major online retailers: Amazon.com, Bhphotovideo.com, Crutchfield.com, Dell.com, HP.com, Newegg.com, and TigerDirect.com. Is Best Buy's policy likely to result in lower prices or higher prices on televisions and other products it sells in competition with Amazon and local brick-and-mortar stores? Briefly explain.

(Related to Solved Problem 14.2 on page 487 ) UPS and FedEx both struggle to deliver the surge of packages they receive during the December holiday season. According to an article in the Wall Street Journal, in 2014 , both firms considered charging Amazon and other firms rates that would be 10 percent higher for packages delivered during the week before Christmas. Such higher rates would likely have increased the profits of both firms. Neither UPS nor FedEx actually raised rates during the 2014 holiday season, but both firms did raise them during the 2016 holiday season. Use game theory to explain why in 2014 neither firm raised rates during the holiday season, but two years later both firms did.
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free