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Some airlines allegedly reduce fares on certain routes to a level at

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

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New post Updated on: 06 Jan 2019, 13:32
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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.

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Originally posted by nitya34 on 15 Mar 2009, 11:30.
Last edited by Bunuel on 06 Jan 2019, 13:32, edited 1 time in total.
Edited the question.
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Re: Some airlines allegedly reduce fares on certain routes to a level at  [#permalink]

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New post 28 Nov 2017, 21:53
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Nikhil_as wrote:
I want to understand why option E is incorrect. In the long term, profitability may be sustained because of more number of passengers that the airlines managed to attract.

Whereas in option B, the airlines will again decrease prices thereby affecting profitability further.

Need an expert's opinion on this question.

Choice (E) only tells us that we will have more customers "when airlines dramatically reduce their fares on a particular route." But what will happen when the airline increases its fares? Will those customers stick around? If they do, will other airlines offer lowers prices to undercut the increased fares?

The author of the passage would argue that an increase in the popularity of the route wouldn't help of those customers just end up flying with competitors once we start charging higher fares to recoup our earlier losses. Thus, choice (E) doesn't impact the author's specific argument and should be eliminated.

Notice the words "for an extended period" in the passage. The author's concern is that if the airline charges higher fares for an EXTENDED period, then eventually rivals will undercut those prices. Choice (B) tells us that the airline can charge higher fares for a while and then, after an EXTENDED period, reduce the fares again if needed to drive away competitors. Even though the airline has to repeatedly lower its prices, with each cycle they'll enjoy an EXTENDED period of charging higher fares and recouping their losses.

I hope that helps!

In other words, the airline would take some losses and then gain them back by charging higher fares for a while. If competitors try to undercut the airline, they'll simply slash fares again for a while to drive out the competition and then repeat the cycle.
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Re: Some airlines allegedly reduce fares on certain routes to a level at  [#permalink]

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New post 07 Jan 2010, 07:53
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Answer: B

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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Re: Some airlines allegedly reduce fares on certain routes to a level at  [#permalink]

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New post 16 Mar 2009, 07:52
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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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Re: Some airlines allegedly reduce fares on certain routes to a level at  [#permalink]

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New post 07 Jan 2010, 06:56
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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.

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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Re: Some airlines allegedly reduce fares on certain routes to a level at  [#permalink]

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New post 27 Jan 2010, 11:47
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.
Correct Answer
Reason: Conclusion talks about the methodology of cutting pricing on a route to kick out competitors. Only this options gives a weakening stand to this methodology!


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.
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Re: Some airlines allegedly reduce fares on certain routes to a level at  [#permalink]

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New post 12 Jan 2011, 20:10
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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. (NOT RELAVANT)
(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.
CONCLUSION: However, this method of eliminating competition cannot be profitable in the long run.
ANSWER: Must weaken the conclusion. Ans: B is a cyclic process.

(C) As part of promotions designed to attract new customers, airlines sometimes reduce their ticket prices to below an economically sustainable level.(ATTRACTS NEW CUSTOMERS...INCREASE REVENUES BUT DOES NOT DRIVE COMPETITIORS)
(D) On deciding to stop serving particular routes, most airlines shift resources to other routes rather than reduce the size of their operations.(THIS WILL SAVE MONEY BUT DOES NOT DRIVE COMPETITIORS)
(E) When airlines dramatically reduce their fares on a particular route, the total number of air passengers on that route increases greatly.(WILL INCREASE REVENUES NO DISCUSSION ABOUT NOT DRIVE COMPETITIORS)

HOPE THIS HELPS !!!!
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Re: Some airlines allegedly reduce fares on certain routes to a level at  [#permalink]

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New post 11 Jan 2014, 18:48
PREMISE - Some airlines allegedly reduce fares on certain routes to a level at which they lose money, in order to drive competitors off those routes.
PREMISE - 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.
CONCLUSION - This method of eliminating competition cannot be profitable in the long run.


Which of the following, if true, most seriously weakens the argument? WE ARE LOOKING FOR A SOLUTION WHERE IN THIS METHOD IS PROFITABLE IN A LONG RUN...

(A) In some countries it is not illegal for a company to drive away competitors by selling a product below cost....SO WHAT
(B) Airline executives generally believe that a company that once under priced its fares to drive away competitors is very likely to do so again if new competitors emerge... SO NEW COMPETITORS can again be eliminated and profit resumed by fare hike
(C) As part of promotions designed to attract new customers, airlines sometimes reduce their ticket prices to below an economically sustainable level...... already known.........but if they go too low on prices ... it would rather be a strengthener...
(D) On deciding to stop serving particular routes, most airlines shift resources to other routes rather than reduce the size of their operations....routes don't matter....profit does.....
(E) When airlines dramatically reduce their fares on a particular route, the total number of air passengers on that route increases greatly...BUT WOULD STILL BE AT LOSSES AS PER THE OPENING STATEMENT...
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Re: Some airlines allegedly reduce fares on certain routes to a level at  [#permalink]

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New post 16 May 2015, 03:05
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.

In short, the airlines can drive off the competitors and the loss they make, the airlines cannot recoup that losses by charging high fares for an extended period (Conclusion of the argument) and the competitors can easily come back by under cutting the prices.

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.
Not worried about the legality of the process -> OFS

(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 weakens the conclusion as when the competitors come back and try to under cut the prices, the airlines again do so to drive off the competitors -> Correct

(C) As part of promotions designed to attract new customers, airlines sometimes reduce their ticket prices to below an economically sustainable level.
That is given in the premise. It doesn't talk about weakening 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.
In fact this strengthens the argument

(E) When airlines dramatically reduce their fares on a particular route, the total number of air passengers on that route increases greatly.
Losses * (Number of passengers) = More losses
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Re: Some airlines allegedly reduce fares on certain routes to a level at  [#permalink]

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New post 25 Jun 2017, 10:04
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Here is why E cannot be right.

From the argument:

Quote:
Some airlines allegedly reduce fares on certain routes to a level at which they lose money,


In other words, while holding fares at the level necessary for driving away competitors, the airline doing so loses money.

Here's what E says.

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


Notice, what E say does not undermine the conclusion, because even with the increase in passengers mentioned in E, the airline offering the lower prices will continue to lose money. A money losing fare level is a money losing fare level regardless of how many passengers an airline has at that level. So, adding the information provided by E does not change the conclusion that the strategy is not profitable.
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Re: Some airlines allegedly reduce fares on certain routes to a level at  [#permalink]

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New post 17 Sep 2017, 09:13
Hoping that experts would help me out here with the reasoning - I was stuck between B and E and picked E.
How does B win over E?
(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 means that competition won't enter the market of that particular route; cause the initial company would reduce its prices again. A contender

(E) When airlines dramatically reduce their fares on a particular route, the total number of air passengers on that route increases greatly.This means that the particular airline would make profits, another contender

So one talks about profit (E) and one talks about competition (B); and both weaken - can anyone help me on this?
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Re: Some airlines allegedly reduce fares on certain routes to a level at  [#permalink]

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New post 19 Sep 2017, 19:31
Madhavi1990 wrote:
Hoping that experts would help me out here with the reasoning - I was stuck between B and E and picked E.
How does B win over E?
(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 means that competition won't enter the market of that particular route; cause the initial company would reduce its prices again. A contender

(E) When airlines dramatically reduce their fares on a particular route, the total number of air passengers on that route increases greatly.This means that the particular airline would make profits, another contender

So one talks about profit (E) and one talks about competition (B); and both weaken - can anyone help me on this?


One key to getting the correct answer to a CR question is being very clear regarding what conclusion you are seeking to weaken or strengthen.

Here is the conclusion to this argument in this question.

this method of eliminating competition cannot be profitable in the long run.

Notice, in order to be profitable, the airline has to increase fares.

E does not indicate that the airline will be profitable, as E says what will happen when the fares are STILL DRAMATICALLY REDUCED. As long as the fares are dramatically reduced, the route will not be profitable no matter how many passengers take that route.

B, by indicating that it is likely that other airlines will stay out of the market even if the airline controlling the route increases prices, shows a path to profitability for the airline that took control of the route by underpricing the competition.
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Re: Some airlines allegedly reduce fares on certain routes to a level at  [#permalink]

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New post 26 Nov 2017, 01:28
I want to understand why option E is incorrect. In the long term, profitability may be sustained because of more number of passengers that the airlines managed to attract.

Whereas in option B, the airlines will again decrease prices thereby affecting profitability further.

Need an expert's opinion on this question.
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Some airlines allegedly reduce fares on certain routes to a level at  [#permalink]

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New post 06 Jan 2019, 23:30
Nikhil_as wrote:
I want to understand why option E is incorrect. In the long term, profitability may be sustained because of more number of passengers that the airlines managed to attract.

Whereas in option B, the airlines will again decrease prices thereby affecting profitability further.

Need an expert's opinion on this question.


Adding to what GMATNinja said - The conclusion says that eliminating competition cannot be profitable in the long run. Why? Because competitors will undercut airline's fare.
Now, the whole process involves two step - 1. Airline reduces price . 2. Airline increases price/ competitors undercut airline's price
Our argument focuses on second step.
The correct answer choice must show that why eliminating competition strategy will remain profitable even after competitors lower their fare below that of the airline.
Choice E may suggest that profitability of the airline will increase when airline reduces its fare (looks more relevant to step 1) , but it doesn't fit the reasoning structure. It doesn't take into account the support (highlighted in yellow) that we provided for the conclusion.
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Some airlines allegedly reduce fares on certain routes to a level at   [#permalink] 06 Jan 2019, 23:30
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