Final answer:
The bus companies likely favored defining their market as 'the market for intercity transportation' to show they weren’t dominating a narrow market, thus avoiding regulatory concerns. Such a definition includes all modes of transport and diminishes their market share. This concept reflects competitive strategies seen in the airline industry, where predatory pricing can eliminate new entrants and infrastructure development is key to market growth.
Step-by-step explanation:
A feeder market is a market that provides the source passengers for a particular destination. When two intercity bus companies such as Greyhound Lines, Inc. and Trailways Transportation System sought to merge, they had to consider how to define their market. The preferred definition of the market greatly influences the regulatory approval process and the competitive landscape. Two possible definitions were 'the market for intercity bus service' and 'the market for intercity transportation, including personal cars, car rentals, passenger trains, and commuter air flights'.
The bus companies likely preferred the broader definition of 'the market for intercity transportation,' including other modes of transportation. This approach would minimize their perceived market share and avoid the appearance of creating a monopoly within a narrower market. This perception could be beneficial during regulatory review, as it might suggest that consumers still have plenty of alternative transportation options, reducing concerns over reduced competition.
However, this scenario also illustrates the potential for predatory pricing, a practice where established businesses set prices very low to outcompete and eliminate new market entrants. Following such a strategy could lead to short-term losses for the incumbent firm, but if successful, the firm could eventually increase prices once the competition is eliminated, as highlighted by the situation described where a large airline slashes prices in response to a new competitor.
In the transportation industry, the development of infrastructure such as airports has been vital in supporting the viability and growth of the market. These facilities make commercial passenger air traffic possible, contributing to a more dynamic and connected intercity transportation market.