Suppose a small regional airport is served by one of the major airlines, and a new low-cost airline enters the market. If the major airline cuts its air fares in this market to levels that are below its marginal cost in response to the other firm's entry, then the major airline may be engaging in:

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The major airline cutting prices below its marginal cost in response to the new low-cost airline's entry may be seen as predatory pricing, which is the act of setting prices below cost in order to eliminate competition. This may be illegal under antitrust laws. Parallel conduct and parallel pricing refer to firms independently setting prices at the same level, without explicitly colluding with each other. Unlawful collusion refers to firms explicitly colluding to fix prices or reduce competition.

Suppose a Small Regional Airport Is Served by One of the Major