Part 1 - Check Your Understanding- Read the following excerpt from a January 2018 Reuters article about the airline industry and answer the questions below:

"Passengers claimed that the airlines' collusion began in early 2009, led to higher fares and reduced flight choices, and together with low fuel prices and higher fees for checking bags and other services helped the industry post record profits....According to government data, American, Delta, Southwest and United together command a roughly 69% share of the U.S.

domestic air travel market"

1.The airline industry is an example of which of the four market structures? How can you tell?

2.Define "collusion" and explain why companies in the airline industry have an incentive to collude.

Part 2 - Practice - The payoff matrix below shows the profit for two competing airlines: Speedy Jet and Royal Jet. Each firm is deciding if they should charge a low price or a high price.

Speedy Jet Low Price High Price Low Speedy Jet Speedy Jet oams $400 oams $200 Royal Air Price Royal Air Royal Air eams $200 earns $600 Speedy Jet Speedy Jet High Royal Air earns $500 Royal Air eams $600 Price eams $300 earns $700Fun Jet Same Flights More Flights Same Fun Jet Fun Jet Party Air Flights ears $400 Party Air eams $500 Party Air eams $400 eams $200 Fun Jet Fun Jet More earns $200 eams $300 Flights Party Air earns $500 Party Air earns $300