In a market like an airline industry, there are only two rivals, and one of which has liquidity issues. A competitor's approach of lowering fares and ticket prices can hasten and aggravate the deficit airline's challenging situation, leading to its exit from the market.
However, there is no competition. The airline that remains in the market has the entire market share, so this predatory pricing technique can result in a monopoly, allowing the airline that remains in the market to raise its costs and rates to decrease service.
As a result, an airline manager with a solid financial position who uses a predatory pricing strategy may face antitrust lawsuits for violating antitrust laws such as the Sherman Antitrust Act. This law aims to prevent monopolies and trade restrictions. Another law, the Clayton Antitrust Act, aims to sanction and eliminate price-fixing, bid-rigging and exclusive purchase agreements between companies.
The agreement can result in expensive legal and judicial expenditures due to attempting to persuade authorities and federal courts that predatory pricing methods were not meant to eliminate competition from the market. This may impact the company's profitability, reputation, and credibility, which has a direct impact on the airline's revenue. Other costs, like marketing to boost the dominant company's image, could also be incurred.
For these reasons, the CEO of a stable cash-flow airline should avoid legal implications by staying on the sideline and not implementing any price reduction strategy that could affect and expedite the exit from the competing market.
