CR - Airlines

Question

See attached

GMATT73 · Answer

Looks like a straightforward (E). Even if the competitors return, the volume of passengers will have increased overall so that the surviving airline can reap future profits.

1:43

sangarelli · Answer

Looks like (D) to me.What if in (E) due to an increase in the number of passengers new airlines start offering services on those routes.

GMATT73 · Answer

Ask Richard Branson. This exact strategy worked for Virgin Airways.

ak_idc · Answer

IF we consider D:

Most airlines shift their routes when the ticket prices come down. And when the survivor or existing player tries to increase the price then they will also start operating in those routes. Hence, there is increased competition. And the competitors can start undercutting.

D is strengthening the argument. No?

SimaQ · Answer

A clear D.....

If other airlines exit the route you were interested in and offered much lower prices, you can safely increase the price and enjoy the profits....

E choice is there to catch you.... this is exactly what GMAT wants, to make you think of some examples in the real life... however this choice is not relevant and out of scope, because you have to think simply here and do not make any assumptions.... If the prices you charge are lower than the costs you incur this means the more users the more losses...

You mentioned Richard Branson.... you think he makes money out of airline passengers? He cuts all other costs dramatically... cheap airports, no free dining in the airplane, carrying baggage is even not for free....

gk3.14 · Answer

D ..

ps_dahiya · Answer

This is exactly what I thought. But to my, and everybody's, surprise OA is B.

kripalkavi · Answer

Went for D.. whats the OE?

ak_idc · Answer

Kavi, its B.

ps_dahiya · Answer

I would love to provide OE, if GMATPrep have provided.

Mikhail Bondarenko · Answer

The logic behind B is akind of self-fulfilling prophesy/game theory thing: that if competitors believe that the airline will easily start the price war anew, they won't try to reenter the market for fear of new losses

The causality in D is less obvious: ok, the rivals shift their planes away to other routes and make their money there  . but it gets out of scope since we only discuss those certain routes that are subject to this price war, not the overal financial wellbeing; and the bracketed assumption is best addressed in B.

I came across that in my practice, chose B.

ak_idc · Answer

good explanation..thanks :-D

FN · Answer

hi..I went with B...

the argument exists on the premise that if an airline reduces it fare once..it will not be able to recoup from that because if the airline increases it fare to recover costs...competitors will jump in and offer competitive pricing on the same route...

the idea is to somehow weaken the possibility of competitors jumping into the fray..B does that..it says once an airline reduces its fare..it will do it again so as to make it hard for competition to enter that route...in other words deter...competition...

CR - Airlines

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