ACCA Applied Knowledge · Business and Technology · Microeconomic factors
Four large airlines supply nearly all flights on a route. When one airline cuts fares, the others quickly match the cut, so fares stay broadly similar and airlines compete mainly through service and loyalty schemes. Which market structure does this best describe?
This is an oligopoly. A small number of large firms dominate the market, they are interdependent and match each other's price changes, so they tend to compete on service and loyalty rather than price.
- AMonopolistic competition
- BOligopolyCorrect
- CPerfect competition
Explanation
A few large firms whose decisions are interdependent, with price matching and non-price competition, is typical of an oligopoly. Monopolistic competition has many small firms, and perfect competition has many price-takers with identical products.
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