In a recent fare war, America West reduced the price of its roundtrip airfare from Charlotte, North Carolina, to New York City from $198 to $138 to match the price charged by American Airlines. America West matched the fare reluctantly, saying it would cost the company millions of dollars in revenue for those tickets to be sold at a lesser price. American Airlines, on the other hand, believed the fare cut would increase its revenue even if rival airlines matched the lower fares. What did each airline assume about the underlying price elasticity of demand for airline tickets on that route?

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The Answer of In a recent fare war, America West reduced the price of its roundtrip airfare from Charlotte, North Carolina, to New York City from $198 to $138 to match the price charged by American Airlines. America West matched the fare reluctantly, saying it would cost the company millions of dollars in revenue for those tickets to be sold at a lesser price. American Airlines, on the other hand, believed the fare cut would increase its revenue even if rival airlines matched the lower fares. What did each airline assume about the underlying price elasticity of demand for airline tickets on that route?

In a Recent Fare War, America West Reduced the Price