DOJ investigation prompts lawsuits alleging that airlines are fixing airfares It is alleged that Southwest, American, Delta, and United Airlines have been colluding to limit the increases in their capacity with the intent of increasing airfares. The airlines say the allegations are without merit. The airline industry is highly competitive with more people flying than ever before.

Describe the fare-fixing scheme as the equilibrium outcome of an oligopoly cartel game played by the airlines. Explain why the cartel survived.

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FIGURE 18.5 Chapter Checkpoint Assignable Problem 6 Price and cost (dollars per flight) 600 500 400 300. 200 100 A MR MC 2 3 5 6 Quantity (thousands of flights per week)