Question

A day after US Airways announced its new low fares for the autumn on travel from New York (i.e., Newark and LaGuardia Airports) to selected cities in the United States and Canada, American Airlines matched their fares. American Airlines is using a _____ strategy.

1) Pricing
2) Competitive
3) Marketing
4) Promotional

Answer 1

American Airlines matched US Airways' low fares as part of a competitive strategy. This pricing approach is common in the airline industry and can lead to predatory pricing, where large companies undercut new entrants to eliminate competition.

Step-by-step explanation:

When American Airlines matched the low fares announced by US Airways, they were employing a competitive strategy. This approach is common in the airline industry, where companies often match the prices of their competitors to maintain market share and prevent potential customers from choosing alternative airlines based solely on cost. This strategy can sometimes escalate into predatory pricing, where larger airlines significantly drop prices to drive out new or smaller competitors, and then raise prices once the competition is eliminated.

Instances of predatory pricing have occurred over the years and have led to legal action. For example, accusations were made by ValuJet against Delta, Frontier against United, and Reno Air against Northwest. Additionally, the Justice Department took action against American Express and Mastercard for imposing restrictions on retailers. This enforcement aimed to prevent business practices that discourage competition and harm consumer interests.