Oligopoly and the Australian Airline Industry

Paper Summary:

This paper explains the theory of oligopoly and discusses how Australia's airline industry provides a solid example of an oligopoly market. It uses case studies of Qantas, Virgin and Tiger airlines to demonstrate how all need to employ profit-maximising strategies that take into account the likely response to the strategies of other firms.

Outline:
Introduction
Case Study

From the Paper:

"The combined profits of firms in an oligopoly can be maximised if they act together as a monopolist. Under "normal" conditions it is expected that firms in an oligopoly will collaborate to produce the optimal conditions for themselves. This leads to a practice known as price-fixing, whereby business competitors agree to sell a virtually homogenous product at the same price. The agreement itself is known as a cartel. Since the practice is anti-competitive, and economically inefficient according to neo-classical economics, it is illegal under the Trade Practices Act and has been the subject of a recent scandal in the airline industry worldwide."

Sample of Sources Used:

• Taylor, J. Frost, L. Microeconomics. Singapore: John Wiley & Sons Australia, 2007.
• Wiens, G. Elmer: Online Interactive Models of Oligopoly, Differentiated Oligopoly, and Monopolistic Competition, 2007.
• Sydney morning herald, Qantas price fixing fines could rise, AAP, 2007
• Vives, X., Oligopoly pricing, MIT Press, Cambridge MA, 2007

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