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Wednesday, November 14, 2012

Oligopoly? ♡ 6:37 PM

Flying is the means of transportation when it comes to long distance and time saving. In Malaysia, we have two main well-established airlines, which are Airasia and Malaysia Airline (MAS). AirAsia is a leading airline company in providing low cost airline services while MAS is more towards providing high quality airline services.

Air Asia Airline

MAS Airline

AirAsia and MAS act as the leaders in the Malaysia airline market. Besides that, they also face a dilemma, which whether should they compete or cooperate. However, they chose to compete rather than to cooperate. Both of the companies have their own strategy, which is low cost airline and high quality airline. AirAsia started sharing the airline market since 2002 by using the low cost airline strategy to penetrate the market. It provides an alternative of airline services for consumers with average income to be able to enjoy airline services at a valued price for long distance journeys. However, MAS provides high quality airline services for the consumers who prefer to have a comfortable situation. In addition to that, MAS also provides package deals, which are free foods and drinks for the travelers and even souvenirs for the children.

Firefly Airline

Both of these airlines contain the characteristic of the oligopoly as the smaller firms in the airline industry of Malaysia abide to their price. Nevertheless, the large firms (AirAsia and MAS) are mutually interdependent. The package deals that AirAsia promote will be monitored closely by MAS, vice versa. They would be competing against each other to gain the most profit. On the other hand, the smaller airline firms in the airline industry of Malaysia for instance, Firefly and Sabah Air airline companies, would have to abide to the price set by the dominant firms which are AirAsia and MAS due to the incapability to compete with the larger firms. However, these small firms will operate as perfect competitive firms and will still generate revenue.

In my opinion, it is good that both the airline companies refuse to cooperate as it would result in a cartel. Cartel is the collaboration of oligopolies to set the price for the market like a monopoly. However, cartel is also illegal and if cartels are formed, it will result in the decrease of consumer surplus. Oligopolies will compete with each other so the price of the products and services will eventually be controlled and will be good for the economy of the country.

Reference: http://biz.thestar.com.my/news/story.asp?file=%2F2012%2F11%2F3%2Fbusiness%2F12263921&sec=business

Written by Wei Hang

Ling Yan said on November 22, 2012 at 10:08 PM

Is it entirely impossible for the smaller firms like Firefly to be oligopolies alongside Airasia and MAS?

Xue Ying said on November 22, 2012 at 10:10 PM

It is quite impossible due to the lack of funds of the smaller firms. There is a barrier to entry as the smaller firms will struggle with the costs and have to spend a lot of funds to penetrate the market because most of the consumers will prefer the larger firms like Airasia and MAS due to their reputation instead of the new and smaller firms.

Anonymous said on November 22, 2012 at 11:59 PM

I hope both of the firms that mentioned in above which is the Airasia and MAS will continue to compete with each others.This is because there will be some improvements between the firms while there are competing with each others. For example, the firms will try their best in order to attract the customer from the other firm to purchase their goods and services.At the same times, the citizen like us will gain the benefit to enjoy a low cost airline and the more package promote by the firms.

ng said on November 23, 2012 at 12:55 AM

it seems an impossible one for the two big dominant flying firms in the country to combine with each other, as we all know they come with two totally different working principles in terms of prices and quality. If they are going to collaborate it would mean that the representatives may face a headache moment in deciding the policy from which firm should be made the reference scale so as to please everyone including the customers.It is quite certain also that if the two firms cooperate they may come out with a relatively higher price for a casual flight and this brings about pros and cons to the community. The poor will have to think of their financial circumstances before making any flights or trips, while the affluent will be the beneficiary party in this case.Personally, i think we should the preserve the current situation where both the firms stand on their own, without one disturbing the other's working, so that each and everyone form the community can enjoy flying.

Xue Ying said on November 23, 2012 at 2:01 AM

I agree with your comment on that and it is a blessing that the two companies does not collaborate as they have different views on how the company operates. It is indeed a headache if the two companies combine and the prices will be really high. Through competing, the consumers and also both the companies are enjoying benefits of their own which is considered a happy resolution for both parties

Anonymous said on November 23, 2012 at 10:50 AM

If airasia and MAS cooperate, then does the monopoly form?

Xue Ying said on November 23, 2012 at 12:07 PM

Yes a big monopoly will be formed however it is considered illegal as they will impose a high price for their services which will decrease the consumer surplus. The vision of AirAsia and MAS are different and they move in different direction, hence the possibility of the two companies collaborating would also be nearly impossible including the fact that cartel is illegal. I believe that these big companies would not want to risk their company's reputation by breaking the law.

cHoOn wAi said on November 29, 2012 at 8:07 PM

Thx for sharing some info about M'sia airlines =)

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