Discussion 3 The United States Airline Case Study
DISCUSSION 3 1
The principal concept for a firm to consider in pursuit of morerevenue is the price elasticity of demand. The prevailing marketconditions determine whether a company should raise its price or not.According to Rios, McConnell & Brue (2013), total revenue refersto quantity demanded times the price of a commodity or service. Theyalso add that elasticity of demand denotes a measure utilized ineconomics to represent the responsiveness of quantity demanded of aservice or a product to its price change. In this regard, a firmneeds to consider the elasticity quotient for it to make an informeddecision on the price to charge for its services and goods. If theelasticity quotient is less than one, then the demand is inelastic,but if the quotient is greater than one, the demand is elastic. Whendemand for a commodity or service is elastic, a firm should charge alow price for it to increase total revenue. On the other hand, acompany should charge a high price to attain high revenues forservices and goods with inelastic demand.
The elasticity of demand in the United States is 2.4, indicating thatthe demand for the airline service in the region is elastic.Therefore, the companies in this sector should lower their prices toincrease their revenues. Undeniably, the reason why Southwest and JetBlue have attained high revenues is that the two companies understandthat the demand for the airline service is elastic and thus they haveto charge low prices. In this way, they attract more customers sincea low price leads to an increase in demand. On their part, Delta andAmerican Airlines have failed to succeed even after merging becausethey charge high prices as if the demand was inelastic. Therefore,they end up attaining low revenues because such high prices reducedemand for their service. If Delta and America Airlines want tocompete effectively with Southwest and Jet Blue, then they mustconsider lowering their prices.
Rios, M. C., McConnell, C. R., & Brue, S. L. (2013). Economics:Principles, problems, and policies. McGraw-Hill.
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