The U.S. Justice Department has been worried that the nations four largest air carriersDelta, Northwest, American, and

The U.S. Justice Department has been worried that the nation’s four largest air carriers—Delta, Northwest, American, and United—use low prices to limit competition at the busiest airports. Predatory pricing exists when the dominant carrier at an airport matches the low prices of any new low-fare competitor and sells more low-fare seats. The major carrier holds these low prices until the new competition folds. The dominant carrier recovers any short-term losses with increased fares once the competition is eliminated.

The government thinks that this pricing response is an anticompetitive strategy. The dominant carriers claim that this response is simply a part of competition. Which is it? How would each of the following pieces of information affect your decision as to whether it is an anticompetitive strategy or a competitive response? Check the appropriatecolumn.

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Anticompetitive Strategy Competitive Response Large, unrecoverable start-up costs for new airlines. Many airlines serve the airport. Dominant arfine drops pric helow average variable cost. Dominant airline flights have excess capacity before the new airline enters the market.