The Price Elasticity Of Demand For Airport Costs - 1574 Words

Market powers and competition Microeconomic theory states that a firm has market power when the prices charged are higher that its efficient cost of production. It is this market power of airports that brings in the need for regulation. The market power of airports has three main components – †¢ Inefficient pricing by airports creates economic losses to the society in terms of deadweight losses. There is also the question of quality of service in the absence of a regulatory environment. †¢ High barriers to entry in this sector increases market power – o Investments made in airports are quite indivisible over the short run. o Incumbent firms can perform better in this market due to the high fixed costs. This provides economies of scale (Baumol et. Al., 1982). o Airports have high sunk costs in the form of building infrastructure. o Network benefits of existing firms make it hard for new firms to enter. †¢ The price elasticity of demand for airport costs is relatively inelastic as airport charges constitute a small part of airfares. These three factors display the market powers of firms in this oligopolistic market. In general, Airports face competition from 4 main sources (Tretheway and Kincaid, 2006). This includes – †¢ Competition for serving a shared local market - This is a geographical competition between airports which are located and have the ability to serve common customers, or overlap customer base at the very least. A trend in the industry has been theShow MoreRelatedSouthwest Airlines and Microeconomics Essay1139 Words   |  5 Pagessupply and demand, elasticity, and their competition in the market. Shifts in the supply and demand for Southwest Airlines within the industry have changed significantly. The demand has gone up because the supply has gone down. For example, many Airline companies have felt the sting of higher jet fuel costs. Southwest is one of the existing airline companies that have reduced the amount of flights that they book due to rising fuel costs. This creates a lower supply with a higher demand. HoweverRead MoreHuge Popularity of Low-cost Airline EasyJet1645 Words   |  7 PagesEasyJet is an airline company operating in a low-cost airline market, which has gained in popularity over the past few years. It has come to EasyJet’s attention that a number of investors are reconsidering an investment in the company. This report should be used as a tool that might help potential investors decide as to why invest in Easy Jet instead of in a competing firm. EasyJet believes in a very high market potential as the industry for low-cost carriers has been rap idly growing with EasyJet beingRead MoreApplication Of Revenue Management For Hospitality Industry1649 Words   |  7 Pagescreated to maximise revenue by knowing the level of demand and supply, elasticity, forecasting demand e.g. festive seasons, overbooking and designing a pricing strategy in order to supply the product to a right customer at right time and price. The basic concept of yield management in the hotel industry is that during periods of high demand for the hotel rooms the prices are set at the highest rate so as to maximise revenue; and the times of lower demand the rate are set so as to encourage occupancy (JeremyRead MoreAnalyzing A Selected Yield And Revenue Management1148 Words   |  5 Pagescreated to maximise revenue by knowing the level of demand and supply, elasticity, forecasting demand e.g. festive seasons, overbooking and designing a pricing strategy in order to supply the product to a right customer at right time and price. The basic concept of yield management in the hotel industry is that during periods of high demand for the hotel rooms the prices are set at the highest rate so as to maximise revenue; and the times of lower demand the rate are set so as to encourage occupancy (JeremyRead MoreAirline Industry1221 Words   |  5 Pagesof staff is cut down costs. An example is United Kingdom, when the UK government imposed high taxes on the aviation industry, the number of cargo operators reduced sharply in order to reduce costs (My-Efficient-Planet, 2010). On the other hand governments support aviation industry by building airports, roads and hotels near airports, because they recognize this industry as an important ingredient for economic well-being. In addition governments arrange security at the airports to ensure safe journeyRead MoreAn Economists Approach to Alcohol Abuse1324 Words   |  5 Pagesany government intervention on condition that the cost of negotiation is not high and the property rights are secured. Pigouvian regulations or taxes: Drunk driving is incorporated. An economist would raise cost through reduced availability and added taxes Analyze how prescription drugs affect the demand and supply of other products and services in this country. According to Garrod and Willis (2007), in economics, the law of supply and demand is regard as one of the fundamental principles runningRead MoreInternational Economic Exam Paper1163 Words   |  5 PagesMR c) What is cross-price elasticity? (2 marks) d) For each of the following pairs of goods state whether the cross-price elasticity is likely to be greater, smaller or equal to zero. (8 marks) i) Petrol, car ii) Tea, coffee iii) Nike trainers, generic brand trainers. tie, business suit. iv) e) In the discussion of elasticity and raising and lowering prices, economists suggest that if you have an elastic demand you should hesitate to raise your price, and that lowering price can possibly increaseRead MoreAirline Industry Essay1242 Words   |  5 Pagesusually passed on to the customers, or the number of staff is cut down to reduce costs. In United Kingdom when the government imposed high taxes on the aviation industry, the number of cargo operators reduced (My-Efficient-Planet, 2010). At the same place governments tend to support aviation industry by building airports, roads and hotels near airports. In addition governments tend to arrange security at the airport to ensure safe journey. The terrorist attacks of September 11, 2001 had negativeRead MoreEconomic Impact on Aviation Industry1294 Words   |  6 Pagesmany ways. For instance, changes in price of an airline industry may also change the demand and elasticity of the services offered by the airline company. In this regard, the outlook of the airline industry can still be considered to have strong growth in spite of changing economic conditions. For airlines, the economic situation for prices, wage inequality and even monetary aspects will hold many challenges and only those airlines which continue to tackle their costs and enhance their services willRead MoreBritish Airways Pest Analysis1888 Words   |  8 Pageskeeps on changing from time to time with the changes taking place in an economy like hike in fu el prices, change in political situations, government policies etc. The economic policies of BA are enormously influenced by the economic conditions of an economy. Any development in the economic conditions such as distribution of income, rise in the standard of living and purchasing power of the public, demand and supply etc. Hugely influence the airline industry. PESTL analysis is a useful tool for understanding