Final answer:
The pricing tactics used by airlines to adjust fares daily in response to competition are an example of competitive intelligence. The correct answer is option b.
Step-by-step explanation:
In the context of airlines adjusting fares in response to competition, the tactic being described is known as competitive intelligence. Airlines, or any business for that matter, use competitive intelligence to stay informed about what competitors are doing, such as pricing strategies or service offers, and respond accordingly to maintain their market position. When an established airline significantly drops prices in response to a new entrant in the market, it can be a strategy to maintain dominance and potentially deter the new competitor. This could lead to what's known as predatory pricing.
Predatory pricing is a strategy where a dominant firm sets prices so low that new entrants cannot compete, often selling at a loss. Once those new entrants are driven out, the incumbent can then raise prices again. This approach can discourage other potential competitors from entering the market, thus maintaining a monopoly or dominant position. Legal cases, such as the actions taken against American Express and Mastercard, demonstrate the complexities and legal scrutiny such pricing strategies can face.
However, distinguishing between competitive pricing and predatory pricing isn't always straightforward. It can be challenging to determine if a price drop reflects healthy competition or a deliberate attempt to undermine rivals. A rule of thumb suggests that selling below the average variable cost might indicate predatory pricing, as operational logic would typically dictate shutting down under such circumstances rather than incurring losses.
In conclusion, when major airlines change hundreds of fares daily in response to competition, this is not indicative of switching costs, corporate espionage, or scenario analysis. Instead, it is grounded in competitive intelligence, a crucial aspect of strategic management that helps businesses adapt to market dynamics and protect their competitive edge.