Answered: . Develop an extended form entry game…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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Question

Background

The airline industry uses a hub-and-spoke distribution structure to funnel passengers into its highly profitable long haul routes. For example, American Airlines has one of its major hubs at Dallas-Fort Worth International Airport (DFW). It has spokes that project out to other airports which are either smaller or not hubs, like those at Kansas City, Wichita, Lubbock, New Orleans, Houston, and Colorado Springs. The spokes are usually characterized by low competition and American tends to use older turbo prop and jet aircraft, charge a premium price and provide fewer flights and always at times designed to marry up with its long haul routes to the east and west coasts and to its foreign destinations.

In the 1990s new low cost airlines began to penetrate some of these markets by providing lower prices, more frequent service and new jet aircraft and associated amenities. One of the routes was from DFW to Wichita, Kansas. A new low cost carrier, Vanguard Airlines entered the market with lower fares, new aircraft and more frequent and convenient times for travelers between DFW and Wichita. It targeted business travelers. American responded by matching the fares, changing out its aircraft, increasing the number of flights and times of the flights and adding extra Frequent Flier mileage. Vanguard was eventually driven out of the market.

Questions

a. Develop an extended form entry game and describe what you think Vanguard was thinking before it entered and what it expected American Airlines to do when it entered.

b. Why did Vanguard choose entry?

c. Why did American Airlines choose the strategy and associated response?

d. Was American’s response predatory from a legal standpoint? Is, why? If not, why?

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