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# Some airlines allegedly reduce fares on certain routes to a

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Manager
Joined: 24 Apr 2008
Posts: 55
Some airlines allegedly reduce fares on certain routes to a [#permalink]

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24 Apr 2008, 16:24
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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
VP
Joined: 10 Jun 2007
Posts: 1438
Re: CR - airline price cut [#permalink]

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24 Apr 2008, 16:32
quiet888 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 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

B is the only one that works and relevant.

You want to weaken the argument that: upon a successful aggressive price-cutting implementation, the airline will not be profitable. My own answer was that the airline will no longer face competition once it successfully drove out competition, and B supports that.
SVP
Joined: 28 Dec 2005
Posts: 1559
Re: CR - airline price cut [#permalink]

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24 Apr 2008, 19:13
i think its B as well
Manager
Joined: 27 Mar 2008
Posts: 98
Re: CR - airline price cut [#permalink]

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24 Apr 2008, 21:11
Agree with bkk. B
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MBA Blog: University of Minnesota Carlson School of Management- http://unconventionalapplicant.blogspot.com/

Manager
Joined: 24 Apr 2008
Posts: 55
Re: CR - airline price cut [#permalink]

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26 Apr 2008, 07:17
Chosen E during the prep-test because I thought that with the increase of passenger, airline will still make profit. Hence, sustaining profitability.
Re: CR - airline price cut   [#permalink] 26 Apr 2008, 07:17
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