Rynair
... (Price Takers) Monopolistic Duopoly Competition Oligopoly 2.1 Ryanair best fit in the oligopoly structure, which resembles monopoly’s behaviour. In this case, however, Ryanair service millions of travellers at a very low cost. 2.2 Ryanair’s Assumptions are as follows: a) Ryanair’s top competitors in this market structure are as follows: 1. British Airways 2. Aer Lingus 3. Virgin Express b) Millions passengers fly with Ryanair because of their lowest airfares. c) It will be very difficult for a new firm to enter this market as it will take a high capital investment to start. d) Ryanair, flies their passengers at reasonable differentiated prices. e) Ryanair aim is to gain the bigger share in the market. 2.3 Oligopoly Pricing Oligopoly profits could never be higher than those of monopoly, since the monopoly chooses the price that maximises industry profits. A price higher than monopoly price would reduce profits, it would drive away to many customers. Therefore, oligopoly price and profits will be somewhere between the monopoly and competitive ends of the scale. The Concentration Ratio of Ryanair and their competitors are shown in the diagram below: Firms Annual Sales 2003 Ryanair British Airways Virgin Express Aer Lingus Buzz å xi (i = 1…4) å xi (I = 1…10) 3.0 Pricing Strategies Ryanair’s pricing decisions are strategic decisions since they have to consider their rivals reactions to those decisions. Ryanair uses a strategy called cost management. Other possible theories that can be used by Ryanair are now shown: 3.1 Game Theory Ryanair may choose to apply the game theory founded by John Von Neuman, when deciding on their prices. They will look at their rivals strategies and in turn make their move. An example: § In the 2000 when they started business online. This bought in fifty thousand bookings a week within a three month span. § In 2002 this strategic move accounted for 94% of online bookings. Other possible theories are Bankruptcy, Conscriton, Prisoner’s Dilemma, Co-ordination, etc. These theories deals with the rational mind. Absolutely rational behaviour is more predictable than irrational behaviour. The out come of a decision depends directly on the strategies chosen by Ryanair’s competitors. 3.2 Price discrimination When firms sell the same product at different prices. (See Apendix 1. Schedule of Flights) 3.3 Kink Demand Curves According to (Paul Sweezy (USA) and R.L. Hall and C. J. Hitch.) In theory, oligopolist face a demand curve that is kinked at the current price, demand being significantly more elastic above the current price than below. In example: § In the 1980’s Ryanair slashed their prices drastically, hence increasing their overall sales. As in the diagram below, a rise in price will lead to a large fall in sales. Price will be raised only after marginal cost has risen as in the diagram above MC2 and that once it has been raised, a new kink will form at that price. § This ma...