PORTIFOLIO Essay Example | Topics and Well Written Essays - 2000 words

PORTIFOLIO - Essay Example 7 a) The benefits of trade and demonstrate the principle of comparative advantage? 9 b) Whether countries are justified in protecting their domestic industries? 10 Reference 12 Bibliography 12 Questions 1 a) What type of market structure is being described above and what are its main assumptions and characteristics? In a concentrated environment like that of Airline industry the market structure followed by the company players are mainly Oligopolistic. Oligopolistic market structure is mainly a characteristic of a market where the number of seller is small and very limited. Straight forward way of direct competition is not followed in case of oligopolistic market rather a more strategic planning is required to be the leader of the market. A market is defined as oligopolistic market when the top five companies in the market captures the share of around 60 % and above. Under the oligopoly market structure the seller has a greater impact on the market than in case of monopoly. Due to th e cartel in the oligopolistic market all the players in the market limits their offers which results in the rise of price and are forcefully imposed on the market. Game theory techniques help the oligopolistic market to solve the equilibrium. Forming a cartel they act in a conjoint manner and fix the price together like monopoly and then share the profit (Econ. Ohio-State, n.d. p. 1-4). b) Discuss the evidence uncovered by the European Commission. European Commission investigated in the matter of air freight collusion case for the anti-competitive practices of the industry and fines eleven airline leaders with a massive amount of â‚ ¬800 million ($1.1 billion) for their faulty practices. Air France was charged with the largest fine of â‚ ¬310 million for their Dutch partner and French carriers. Though the Lufthansa and the Swiss Airline was accused at the beginning but they escaped the charged penalties as they act as the whistle blower on the cartel issue. British airways wer e charged a fine of â‚ ¬270 million after the second largest penalty for SAS Group along with Singapore Airlines with an amount of â‚ ¬70-80 million. Due to the previous involvement by the SAS group in anti competition issue they were charges about 50 % more than that should be charged. Many others airlines were charged with penalties according to their involvement in the process. Cartel behavior of fixing price for a long period of 6 years was uncovered by the European Commission against these airlines. With the activities like fuel price hike and security surcharges the players were involved in the Cartel practice (Anderton, n.d., p. 379). c) What form of collusion did the airline companies engage in? What factors can make some sectors more susceptible to this form of collusion? In some market segment the competitors are not sure of their moves and effect of their strategies implemented in the market. In such cases in an oligopolistic market collusion or a conjoint effort is done to share the market profit amongst the players. Collusion can be of several forms. It can be broadly categorized as Formal Collusion and Informal Collusion. The collusion technique followed by the airline industry is mainly formal form of collusion by forming a cartel between the small numbers of leaders in the industry. This form of cartelization is done where there are limited leaders with similar types of products offered to the customers and for their mutual benefit they form the cartel to take all decision together rather than