Read the scenario and answer each questions.

Scenario: Emirates and other Middle East carriers have expanded aggressively into the “kangaroo” route between Britain and Australia. In 2013, Qantas and Emirates agreed to coordinate schedules, advertising, and pricing, and share revenues. Qantas changed its kangaroo stopover from Singapore to Dubai. Subsequently, Virgin Atlantic withdrew from the kangaroo market.

Answer these questions:

1. Suppose that airlines set capacity according to the Cournot model. If Emirates and Qantas reduce their marginal cost through the code-share agreement, how should other airlines adjust their capacity?
2. Suppose that Emirates-Qantas exercises capacity leadership. How would other airlines adjust their capacity as compared with (1)?
3. How will the agreement between Qantas and Emirates to share revenues affect their incentive to cut price?
4. If Qantas and Emirates raise prices, how should other airlines respond?

Answer rating: 100% (QA)

1 The other airlines should equally reduce their marginal cost to meet the expected output indicated as a principle of the Cournot model This model pr... View the full answer