For years, 'Aero Airlines' was the only carrier offering direct flights between two small cities. Recently, a new budget airline, 'Breeze Flights', began servicing the exact same route. Assuming both airlines offer comparable flight times and service quality, how will the introduction of the new competitor most likely affect the demand for 'Aero Airlines' tickets?
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Pricing Power in a Changing Market
For years, 'Aero Airlines' was the only carrier offering direct flights between two small cities. Recently, a new budget airline, 'Breeze Flights', began servicing the exact same route. Assuming both airlines offer comparable flight times and service quality, how will the introduction of the new competitor most likely affect the demand for 'Aero Airlines' tickets?
Market Structure and Pricing Flexibility
A company that sells a product with many readily available, nearly identical substitutes can significantly increase its prices without experiencing a substantial loss in sales volume.