Given the recent events in the US Airways and American Airlines merger, one has to wonder,...

Given the recent events in the US Airways and American Airlines merger, one has to wonder, is the airline industry monopolistic? Which is worse, monopolies or competition? Explain your answer and provide references.

Expert Solution

monopolistic competition : a market with large number of sellers selling differentiated products

Oligopoly: small number of firms existing in the market

So from the above market definitions we can say that the airline industry is not monopolistic competition but it is a oligopoly market where there are small number of firms competing with each other. the firms under oligopoly uses different types of mergers and corporations to reduce market competition and increase their profit margins. one of the example is US Airways and American Airlines merger.

the monopolies are worse for the economy as it increases social welfare loss by exploitation of customers through product differentiation and also leads to inefficient utilization of resources. the competition is best for the efficient use of resources. it also increases social welfare by reducing dead weight loss. the competition is good for the economy

Rahul Sunny answered 1 year ago

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