Final answer:
The large airline can make additional profit by price-discriminating and driving competitors out of business. Price discrimination allows the airline to charge different prices to different segments of passengers.
Step-by-step explanation:
The large airline is able to make additional profit by price-discriminating and driving competitors out of business. When a new start-up airline enters the market, the large airline reduces prices on the route to a point where the new entrant cannot make any money. This forces the new airline out of business. Once the competition is eliminated, the large airline can raise prices again, resulting in additional profit.
By engaging in price discrimination, the large airline can maximize its profit by charging different prices to different segments of passengers based on their willingness to pay. This strategy allows the airline to capture more value from passengers who are willing to pay higher fares, while still filling seats with passengers who are more price-sensitive.