100 Economics Question of the Day: An Intermittent Blog: Reality Bites Oligopolies Too - Sep. 16, 2005

Friday, September 16, 2005

Reality Bites Oligopolies Too - Sep. 16, 2005

Reality Bites: "Mistakes that caused bad times were made in good times: Management at fault in bankruptcies"

Which leaves the question: if managers should be compensated for their performance, why does such compensation tend to be a one-way street?

Check out the graphic at the right. Of the seven largest airlines, five are at or near bankruptcy. The other two are Continental and Southwest.

The Southwest story is well-discussed everywhere. Continental, in my humble opinion, has the best Customer Service department of all the airlines. This doesn't mean they are perfect--they once took 24 hours to return a suitcase to me that never left their possession, and which they originally mistagged--but they try and they work with you.

In an oligopolistic industry, it's often too easy to think of advertising as the best way to differentiate your product. But customer service leads to "free" advertising (i.e., word of mouth), which would seem to be more effective.

Just as the people at Doesn't Ever Leave The Airport, whose effective monopolies and resultant pricing power in several locations (Cincinnati, Atlanta, etc.) doesn't seem to have carried the day.


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