Implication of imperfect information

Implication of imperfect information

Perfect information is an element that is very important when it comes to a competitive market. The presence of the element of imperfect information in the market will have negative effect, especially on consumers. The transactions in the market will have the characteristics of asymmetry. This is because the seller, who will be a company, formed after the merging of American Airlines and US Airways, will more information regarding economic transactions in the market compared to buyers, who are customers of the airlines.

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The company formed as a result of merging will know more about the customers in the market. This is not good since it has the ability to cause increase in prices of services that are provided and decline in quantity of services due to the formation on one firm. The market will not be able to reach equilibrium. This imperfect information favors the seller of services. It will be likely for buyers to make poor decisions in the market due to information asymmetry. The customers will not be having all the information that is needed to make informed decisions regarding the quality and prices of products and services that is being provided in the market. The bad thing with imperfect information is that it may discourage customers of the airlines from participant in the market. Customers will be reluctant to take part in many activities because they do not have the ability to determine quality of services that are being provided or prices. This may be also be brought in also be the element of reduced choices regarding services that are given.

Recommendation

From the results obtained, there is no ratio that is beyond 1,500 or close to 2,500. This is from values of the domestic market, hubs, and other ten markets. The decision to prevent the merger of these two firms by the Department of Justice was not correct. The calculations show that there will be no concentration in all the selected hubs and markets. Even with the merger of American Airlines and US Airways, there will still be perfect competition in the markets. This means that there will be no need to divert route or change hubs.

References

Statista. (2017). Domestic markets share of leading U.S airlines in 2016. Retrieved from

https://www.statista.com/statistics/250577/domestic-market-share-of-leading-us-airlines/

Wara, M. (2016). Fostering Competition in the 21st Century Electricity Industry. Harv. Envtl. L.

Rev. F.40, 41.

Von Kalinowski, J. O., Sullivan, P., McGuirl, M., Folsom, R., & Fine, F. (2016). Determining

Legality and Defenses (Vol. 2). Antitrust Laws and Trade Regulation, Second Edition.

Naldi, M., & Flamini, M. (2014, March). Interval estimation of the Herfindahl-Hirschman index

under incomplete market information. In Computer Modelling and Simulation (UKSim), 2014 UKSim-AMSS 16th International Conference on (pp. 318-323). IEEE.

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