Question

Economics

A. Examine the U.S. passenger airline industry using the Five Forces. Is this an attractive industry? Why or why not? (Discuss: Supplier Power; Buyer Power; Substitutes; Rivalry; Entry)

B. Clear Channel, an owner of multiple radio stations with the Top 40 format, recently bought rock concert promoter Live Nation. How would this affect prices for concert tickets or rates for radio programming?

Answer 1

A)

• The power of the buyer is high, this is due to the multitude of entrants in the industry. Consumers go for the company offering a more cost-effective package but some customers are also loyal to certain airlines.
• The High barrier to entry is low, this is because of the high cost of starting an airline company and also the company has to pass many government rules and regulations. Also, the market is filled wit competion from other airlines.
• The bargaining power of the suppliers is high due to the less availability of companies that produce aircraft machinery and parts are not interchangeable.
• There is a moderate threat from substitutes due to the availability of different modes of transportation for individuals. Consumers consider cost, time, service and the destination to which they travel.
• Firm rivalry from competitiors is also high because there are many airlines competing for consumers and they provide cheap flights and better service.