WEEK 1 BUSINESS BRIEF : Ethical Issue 16-1

From: Samaa Al Subhi (Student ID: 0663977)

Subject: Week 1 Discussion Questions

Date: November 22, 2017

Consider firms in industries you are familiar with. Are firms in such industries price-takers or price-setters? How much control do they have over the prices they charge?

An industry that I am familiar with is the Airline Industry.

A price taker means a company that does not have the power or influence to set its own prices for its products and must use the prevailing prices set by the market. A price maker, on the other hand, is able to heavily influence the prices charged for its products because no other companies have the same product or a similar product of the same quality. A price maker is essentially able to charge whatever it wants. In other words, usually, price setters are considered a monopoly structure.

With the Airline industry, considering that there are many substitutes and alternative airlines competing in the market providing very similar services, it would make the industry more of a competitive market. In a competitive market, as stated above, we understand that industry would be considered a price taker. In other words, the market would set the product or service price. Nevertheless, Airlines that hold major market share would have some influence over setting the prices to some extent. However, considering that the airline is price elastic to demand if prices are set higher by an airline, customers can easily shift to other airlines. This movement also indicates that the airline industry is a price taker and must accept the pricing set by the market.