Some airlines allegedly reduce fares on certain routes to a : GMAT Critical Reasoning (CR)
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# Some airlines allegedly reduce fares on certain routes to a

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Some airlines allegedly reduce fares on certain routes to a [#permalink]

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15 Mar 2009, 10:30
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Some airlines allegedly reduce fares on certain routes to a level at which they lose money, in order to drive competitors off those routes. However, this method of eliminating competition cannot be profitable in the long run. Once an airline successfully implements this method, any attempt to recoup the earlier losses by charging high fares on that route for an extended period would only provide competitors with a better opportunity to undercut the airline's fares.

Which of the following, if true, most seriously weakens the argument?

(A) In some countries it is not illegal for a company to drive away competitors by selling a product below cost.
(B) Airline executives generally believe that a company that once underpriced its fares to drive away competitors is very likely to do so again if new competitors emerge.
(C) As part of promotions designed to attract new customers, airlines sometimes reduce their ticket prices to below an economically sustainable level.
(D) On deciding to stop serving particular routes, most airlines shift resources to other routes rather than reduce the size of their operations.
(E) When airlines dramatically reduce their fares on a particular route, the total number of air passengers on that route increases greatly.

Pls elaborate
[Reveal] Spoiler: OA

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15 Mar 2009, 12:46
nitya34 wrote:
Some airlines allegedly reduce fares on certain routes to a level at which they lose money, in order to drive competitors off those routes. However, this method of eliminating competition cannot be profitable in the long run. Once an airline sucessfully implements this method, any attempt to recoup the earlier losses by charging high fares on that route for an extended period would only provide competitors with a better opportunity to undercut the airline's fares.

Which of the following, if true, most seriously weakens the argument?

A) In some countries it is not illegal for a company to drive away competitors by selling a product below cost. The question is not about whether it is legal or not for a company to drive away competitors. This answer is wrong.
B) Airline executives generally believe that a company that once underpriced its fares to drive away competitors is very likely to do so again if new competitors emerge. This answer seems to strengthen the argument. When new competitors emerge, the company will again lower the price, so it will not profit in the long run.
C) As part of promotions designed to attract new customers, airlines sometimes reduce their ticket prices to below an economically sustainable level. This answer does not weaken the argument.

D) On deciding to stop serving particular routes, most airlines shift resources to other routes rather than reduce the size of their operations. Stop serving particular routes is outside the scope of the argument.

E) When airlines dramatically reduce their fares on a particular route, the total number of air passengers on that route increases greatly. I guess I will choose this one although I am not totally convinced. If the number of air passengers on that route increases greatly, it will offset the lower price the airline charges. Therefore, it is not ok to say the method will not be profitable in a long run.
Pls elaborate
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15 Mar 2009, 21:12
Is it D? If so, I will provide my explanation.
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15 Mar 2009, 22:08
i think B is correct .
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15 Mar 2009, 23:08
read argument again and E makes more sense .
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16 Mar 2009, 01:52
Though E is not dat great, but still i find it more convincing as compared to other options
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16 Mar 2009, 05:48
My option is B
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16 Mar 2009, 06:16
My choice is E. Below is my explanation for the same.

The conclusion of the argument is that "However, this method of eliminating competition cannot be profitable in the long run". Only option E provides a valid argument that goes against the conclusion.
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16 Mar 2009, 06:52
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IMO the answer should be B. The author says first competitors are driven off these routes, but they will come back once the airline x charges higher prices again (i.o. to become profitable). Answer B says "no, the competitors won't come back because once they start flying these routes again the airline x will lower prices again and nobody makes any profit".

On answer E: The increase in passenger numbers could lead to higher utilization of planes and this higher efficiency to profitability, but it could also lead to the following: if I sell flight tickets for 1 Dollar I will make 100 Dollar loss on every customer. If the total number of airline passengers increases greatly, I may lose even more money.
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16 Mar 2009, 07:59
Agree with milo's logic but I'll go with E.

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16 Mar 2009, 08:07
OA-B

I belive its an unconfirmed GmatPrep Q
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07 Jan 2010, 05:56
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nitya34 wrote:
Some airlines allegedly reduce fares on certain routes to a level at which they lose money, in order to drive competitors off those routes. However, this method of eliminating competition cannot be profitable in the long run. Once an airline sucessfully implements this method, any attempt to recoup the earlier losses by charging high fares on that route for an extended period would only provide competitors with a better opportunity to undercut the airline's fares.

Which of the following, if true, most seriously weakens the argument?

A) In some countries it is not illegal for a company to drive away competitors by selling a product below cost.

B) Airline executives generally believe that a company that once underpriced its fares to drive away competitors is very likely to do so again if new competitors emerge.

C) As part of promotions designed to attract new customers, airlines sometimes reduce their ticket prices to below an economically sustainable level.

D) On deciding to stop serving particular routes, most airlines shift resources to other routes rather than reduce the size of their operations.

E) When airlines dramatically reduce their fares on a particular route, the total number of air passengers on that route increases greatly.

[Reveal] Spoiler: OA
B

Pls elaborate

A.incorrect.the legality or the illegality of the price cutting is out of question.the main concern is the profit and loss of the concerned company
C.Incorrect.In my opinion,this strengthens the argument by pointing out that the airlines reduce the pay to unsustainable levels that losses will occur.
D.Incorrect.Shifting of the resources to other routes is irrelevant.
E.Incorrect.The number of passengers on a route has little to do with the argument.
B.Correct.Best describes the point that even if the competitors come back to the original routes the Company concerned is willing to drop the prices again to low levels.Hence weakens the argument that it will provide the competitors with a better opportunity.
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07 Jan 2010, 06:53
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Reason: The conclusion states that the strategy of lowering prices cannot be profitable long term – the reason why it cannot be profitable is because when the airliner that dumped begins to raise prices to recoup dumping losses, competitors will re-enter the market and undercut them. B states that the competitors would actually be unlikely to actually re-enter the market because they believe the airliner will go back to dumping. This would imply that the strategy is indeed profitable in the long-term, nullifying the conclusion.
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07 Jan 2010, 08:25
Moss... well done. Thanks
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07 Jan 2010, 10:16
B seems correct.
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07 Jan 2010, 19:04
It looks like that option B strenthen the argument. If the Airlines for elimination of existing competitors or new new competitors lower the fares below to a level at which airlines lose the money then it is possible that Airline that is reducing the fares so many times will not be profitable see the wording "airlines allegedly reduce fares on certain routes to a level at which they lose money,..".

By elimination method, i will go with E though this option is uncertain but other options are certain enough to be eliminated.
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08 Jan 2010, 02:35
I had B before I saw the answer. Moss's explanation is good.
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08 Jan 2010, 10:03
Quote:
Once an airline successfully implements this method, any attempt to recoup the earlier losses by charging high fares on that route for an extended period would only provide competitors with a better opportunity to undercut the airline’s fares.

(B) Airline executives generally believe that a company that once underpriced its fares to drive away competitors is very likely to do so again if new competitors emerge.

Nothing else really does that.
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26 Jan 2010, 16:18
IMO E. Greater number of passengers implies more traffic and encourages multiple operators. The argument as a whole is not just talking about providing oppurtunity to competitors but also talks about eliminating them thru un-reasonable fares.
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26 Jan 2010, 19:32
PR 1: Some airlines allegedly reduce fares on certain routes to a level at which they lose money, in order to drive competitors off those routes.
CN: this method of eliminating competition cannot be profitable in the long run.

PR 2: Once an airline sucessfully implements this method, any attempt to recoup the earlier losses by charging high fares on that route for an extended period would only provide competitors with a better opportunity to undercut the airline's fares.

Which of the following, if true, most seriously weakens the argument?

A) In some countries it is not illegal for a company to drive away competitors by selling a product below cost.

B) Airline executives generally believe that a company that once underpriced its fares to drive away competitors is very likely to do so again if new competitors emerge.

C) As part of promotions designed to attract new customers, airlines sometimes reduce their ticket prices to below an economically sustainable level.

D) On deciding to stop serving particular routes, most airlines shift resources to other routes rather than reduce the size of their operations.

E) When airlines dramatically reduce their fares on a particular route, the total number of air passengers on that route increases greatly.

-- E says no it can be profitable in long run.
So E should be the answer.
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Re: CR-some airlines   [#permalink] 26 Jan 2010, 19:32

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