A town with a small airport is served by two competing airlines. Which of the following strategies would be more likely to lead to price competition between the airlines? a) The airlines operate identical planes with the same type of seats and equal legroom for passengers. b) One airline provides meals on every flight, while the other offers no meals but experiences fewer delays. c) Both airlines offer flights to different sets of cities. d) The airlines provide loyalty programs that incentivize existing customers to remain loyal.
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The option that would be more likely to lead to price competition between the two competing airlines in a town with a small airport is:
a) The airlines operate identical planes with the same type of seats and equal legroom for passengers.
When both airlines operate identical planes with the same type of seats and equal legroom, the service they provide is very similar. Because there are few differentiating factors aside from price, customers are likely to make their choice based on ticket cost. As a result, each airline might lower its prices to attract more customers, leading to price competition.