Jet Blue Corporation continuously offers fare discounts to attract customers awareness about the company, increase market share and increase revenues on the routes in the USA market.
a. Under what market structure would you classify the airline industry in the USA? Perfect competition, pure monopoly, monopolistic competition or oligopoly? Justify your answer
b. Some industry analysts argue that this strategy is not effective, because other companies will do the same and therefore Jet Blue will not be able to steal away customers from them. Do you agree or disagree with this statement of these analysts. Explain why or why not.
c. Suppose that Jet Blue's strategy is right, will this type of policy maximize revenues at an output level that is greater then or less than the short run profit maximizing level of output? Justify your answer in favor or against this objective and explain why.
d. Would you consider this approach incompatible with long run profit maximization? Explain why or why not.