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# Some airlines allegedly reduce fares on certain routes to a

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

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19 Sep 2005, 19:13
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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 these 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 passangers on that route increases greatly.

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Re: CR - airline fares [#permalink]

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19 Sep 2005, 19:52
(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.

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Director
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19 Sep 2005, 19:56
(C) As part of promotions designed to attract new customers, airlines sometimes reduce their ticket prices to below an economically sustainable level.

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Senior Manager
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19 Sep 2005, 20:52
B here as well by POE.

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Intern
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19 Sep 2005, 22:07
B here as well.

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Manager
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Re: CR - airline fares [#permalink]

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19 Sep 2005, 23:30
coffeeloverfreak wrote:
Some airlines allegedly reduce fares on certain routes to a level at which they lose money, in order to drive competitors off these 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 passangers on that route increases greatly.

It's D.

The question stem is that the subject airline is trying to monopolize the particular route. Once it is succesful the other Airlines will shift their resources to other routes rather than reduce the size of their operations thus giving a free hand to the airline who is tring to monoplize.

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VP
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20 Sep 2005, 02:03
totally POE -> I chose B

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Senior Manager
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20 Sep 2005, 06:25
OA is B.

GMATPrep's software doesn't offer any explanation, however.

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VP
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20 Sep 2005, 11:21

The airlines assumption was that it will be able to charge much higher prices later on when the competition has gone way. Once they start doing that, there is nothing preventing other companies to come and offer lower rates - albiet still profitable rates as opposed to rates that would make them lose money.

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Senior Manager
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20 Sep 2005, 11:43
But that's just restating the original argument, not weakening it.

That's what I don't get. The original argument says that lowering fares to undercut competitors is unprofitable in the long run, because eventually the airline will have to charge higher fares to recoup their costs, at which point competitors will be able to undercut them and steal back their customers.

B just says that the other airlines believe the first airline will lower the prices on that route again. But why would that weaken the argument?

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Senior Manager
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20 Sep 2005, 11:55
coffeeloverfreak wrote:
But that's just restating the original argument, not weakening it.

That's what I don't get. The original argument says that lowering fares to undercut competitors is unprofitable in the long run, because eventually the airline will have to charge higher fares to recoup their costs, at which point competitors will be able to undercut them and steal back their customers.

B just says that the other airlines believe the first airline will lower the prices on that route again. But why would that weaken the argument?

The argument says the price reduction is not good stategy because when the ariline drives away competetion and starts charging high the competitiors will butt in and offer low price to attract customers.

B says, in that case the airine will again dip their price below the competitors..to monopolize the route....

That is why it weakens the argument...
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Fear Mediocrity, Respect Ignorance

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20 Sep 2005, 11:55
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# Some airlines allegedly reduce fares on certain routes to a

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