Question

A. J. Munopilee is the owner of Munopilee Air, the only airline currently flying between Erewhon and El Dorado. It flies two roundtrip flights per day, with the average flight being about 85 percent full. A new entrant, UpStart Airways, has announced plans to offer an additional two flights per day in the Erewhon-El Dorado market. However, its entrance must be approved by the PAB (Polite Aeronautics Board). A. J. and his co-directors argue before the PAB that UpStart should not be allowed such entry because Munopilee asserts that UpStart’s entry will only cause both Munopilee and UpStart to fly inefficiently small numbers of passengers— each operating planes that are less than half full. Munopilee points to its current load factor or occupation rate of 85 percent as evidence that the market is not big enough for both carriers to operate efficiently. Evaluate the argument put forward by Munopilee Air. Do you think it is valid or not?

Answer 1

As mentioned in the question, Munopilee air is the only airline flying between Erewhon and El Dora's. It means it enjoys monopoly power in that area.

As we know that present market is customer - oriented.Any business should keep in mind that customers are the main element around whom the whole business runs. Market structure states that if competition doesnot exist then it may not be beneficial for the customers

It is the normal feature of monopoly to produce less output and charge higher prices. As in the case of Munopilee air, there was only two flights per day. But if Upstart Airways will come in the business then customers will get two additional flights per day. So the choice will be more for the customers while travelling. It is not possible in case of monopoly.

It is a general statement that monopoly snatches consumer surplus. But if there will be competition then both the airlines will work more efficiently and customers will get more options in their journey.

So it is not a valid statement from Munopilee air to prevent Upstart Airways to come in competition with Munopilee.