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

Question

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.

GMATNinja · Accepted Answer

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.

Moss · Answer

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.

milo · Answer

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.

mojorising800 · Answer

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.

anandthiru · Answer

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 !!!!

MartyTargetTestPrep · Answer

Here is why E cannot be right.

From the argument:

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.

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.

Madhavi1990 · Answer

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?

MartyTargetTestPrep · Answer

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.

Nikhil_as · Answer

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.

willacethis · Answer

egmat GMATNinja MartyTargetTestPrep VeritasKarishma mikemcgarry souvik101990
Dear experts

The conclusion for this prompt that needs to be weakened according to my understanding is "However, this method of eliminating competition cannot be profitable in the long run"

Now, when we are talking about long run profitability, I don't understand how B weakens the conclusion i.e. suggests that cutting the prices as soon as any competitor comes will lead to higher profitability "in the long run".

Wouldn't strategy in option B just constrain the firm's business even more by selling the product at low/no profitability time and again?

Am I assuming too much?

Also, if there is an alternate flow of thoughts that should occur to me as soon as I see option B, how am I supposed to think the right way, and thus arrive at the correct answer?

Thanks!

CrackverbalGMAT · Answer

Hi

We should always look to dovetail the facts presented in the answer option with the premises presented in the stimulus.

In this question, the conclusion is that a strategy to underprice an airline's competitors away from a route will be counterproductive in the long run because any attempts to recoup the losses will fail. In order to weaken this, we need an answer that suggests that this will not fail.

As per the premise stated, the failure of the attempt to recoup losses will be because it will allow competitors to undercut the airlines prices. In order to weaken the conclusion, this line of reasoning needs to be broken ie; we need something that says that competitors will  not be able  to undercut the airline's prices once they are driven out of a route.

Option (B) states that "a company that once underpriced its fares to drive away competitors is very likely to do so again if new competitors emerge". If this is true, then once the company raises prices to recoup losses, the belief stated in this option will prevent other competitors from re-entering the route and undercutting the airline's prices while it is attempting to recoup the losses. Hence, the airline may be able to recoup its losses.

Hope this helps.

GMATNinja · Answer

Well, according to the argument, WHY exactly is this method not profitable in the long run?

So here's how the logic breaks down:

An airline can drive competitors off a route by reducing fare to a level at which the airline loses money. 
  Then the airline could recoup losses by charging high fares on that route. 
  However, charging high fares on that route for an extended period would only provide competitors with a better opportunity undercut those higher fares. 
  Therefore, this method of eliminating competition cannot be profitable in the long run.

You seem to be assuming that once an airline reduces fares and drives competitors off a route, then that airline must continue selling tickets at that reduced fare. However, the passage doesn't say this. The passage implies that if an airline drive competitors off a route, then the airline's next action is to recoup losses by charging high fares on that route.

The author argues that this action cannot be profitable in the long run, because competitors can then come back on the route to compete with higher fares.

Now, here's choice (B) one more time:

This choice gives us a reason why competitors would NOT choose to come back. If airline executives believe that coming back on a route they've been driven off will result in the leading airline once again reducing its fares, then we'll have less reason to believe that competitors will return at all.

(B) most seriously weakens the argument because it explains one way that competitors are deterred from disrupting the method in question.

I hope this helps!

NavjotSingh · Answer

Hi There! I want to know why is 'D' not a correct answer. It clearly states that when airlines stop serving particular routes they shift their operations to some other route rather than reducing the operations on that route.

GMATNinja · Answer

Let's say that one of the routes discussed in the passage is from Denver, Colorado to Queenstown, New Zealand. Several airlines offer this route initially, but then one airline reduces its prices drastically in order to drive off the other competitors.

(D) tells us that the competitors driven off of the Denver to Queenstown route don't simply offer fewer flights -- they "shift resources  to other routes ." So instead of flying from Denver to Queenstown, perhaps they offer flights from Memphis, Tennessee to Siem Reap, Cambodia.

The author's argument centers on the long-term profitability of the price-gouger -- that is, the airline still offering service from Denver to Queenstown. Whether the other airlines reduce operations or shift their resources to different routes provides no information about the profitability of the price-gouging airline.

(D) does not impact the author's argument, so it can be eliminated.

I hope that helps!

rashwiniyer · Answer

can someone please explain how "B' is the correct answer?

"Airline executives generally believe .... " If this is true, it means that it is true that they believe. If the option were "a company that once underpriced its fares to drive away competitors is very likely to do so again if new competitors emerge.", then it would make sense.

Please correct me.

GMATNinja · Answer

We're looking for the answer choice that "most seriously weakens" the argument in the passage. That means that we're looking for the option that weakens the argument a bit more than the other options. We do not need an answer choice that PROVES that the argument is completely wrong. Something that weakens the argument a bit is enough.

Here's (B):
 
Would (B) be a  better  weakener if the words "Airline executives generally believe" were taken out? Sure! But as written, (B) still does weaken the argument. It gives us a reason why competitors would NOT choose to come back. If airline executives believe that coming back on a route they've been driven off will result in the leading airline once again reducing its fares, then we'll have less reason to believe that competitors will return at all.

(B) most seriously weakens the argument because it explains one way that competitors are deterred from disrupting the method in question.

I hope this helps!

Adit_ · Answer

However option B states that the airline would undercut only if "new" competitors emerge, the existing competitors can still undercut them right?

guddo · Answer

You are right that “new” sounds narrower, but, I think, in this context the rivals who were driven off the route become  new entrants  the moment they try to come back, so B can cover them.

More importantly, B’s point is that undercutting is risky because it likely triggers another below cost price war, so competitors may not take the  opportunity  even if the airline raises fares.

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

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GMAT Critical Reasoning (CR) Questions

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

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