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Expert replies
by gmat_perfect » Sun Jul 25, 2010 1:03 pm
Some airlines allegedly reduce fares on certain routes to a level at which they lose money, in order to drive competitors off those routes. However, this method of eliminating competition cannot be profitable in the long run. Once an airline successfully implements this method, any attempt to recoup the earlier losses by charging high fares on that route for an extended period would only provide competitors with a better opportunity to undercut the airline's fares.

Which of the following, if true, most seriously weakens the argument?

(A) In some countries it is not illegal for a company to drive away competitors by selling a product below cost.
(B) Airline executives generally believe that a company that once underpriced its fares to drive away competitors is very likely to do so again if new competitors emerge.
(C) As part of promotions designed to attract new customers, airlines sometimes reduce their ticket prices to below an economically sustainable level.
(D) On deciding to stop serving particular routes, most airlines shift resources to other routes rather than reduce the size of their operations.
(E) When airlines dramatically reduce their fares on a particular route, the total number of air passengers on that route increases greatly.

[spoiler]OA: b[/spoiler]


why not e?
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Source: — Critical Reasoning |

by kvcpk » Sun Jul 25, 2010 1:15 pm
Conclusion of argument is that the attempt of airline companies will not be beneficial in the long run because it provide competitors with a better opportunity to undercut the airline's fares

We need to weaken this conclusion.

B says that the airline company will not reduce the prices again and again when new competitiros arrive.
This will weaken the conclusion because, it shows that the airline companies will not be affected much.

E says:
When airlines dramatically reduce their fares on a particular route, the total number of air passengers on that route increases greatly.

We can only understand from this that the number of passengers grew. We do not know if the increase in passengers is resulting in increasing profits??

Let us say, there are 10 seats avaialble.
Price = 200$
Number of passengers = 5
Revenue = 1000$

Let Price be reduced to 100$
Number of passengers inceased to 9
Revenue = 900$
Less than what it was earlier.
In this case it will support the conclusion.
Hence we cant choose E.

Hope this helps!!
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by indiantiger » Sun Jul 25, 2010 1:29 pm
The conclusion is that if lower your products prices to scare away the competition then you cannot bring the prices up w/o opening the gates for competition. We need an answer choice that breaks this conclusion

(A) In some countries it is not illegal for a company to drive away competitors by selling a product below cost. <does not make any sense>
(B) Airline executives generally believe that a company that once underpriced its fares to drive away competitors is very likely to do so again if new competitors emerge.
(C) As part of promotions designed to attract new customers, airlines sometimes reduce their ticket prices to below an economically sustainable level. <good to know but how does it help us in answering the question>
(D) On deciding to stop serving particular routes, most airlines shift resources to other routes rather than reduce the size of their operations. <I think what the question maker is trying is to trick you by thinking that if airlines are going to put their operations somewhere else they wont move back to the route they left >
(E) When airlines dramatically reduce their fares on a particular route, the total number of air passengers on that route increases greatly. <this is actually kind of strength the conclusion, an airline can only serve x number of passengers due to limited seats so the overhead of extra travelers would be an invitation for other airlines to come in fill that gap.>
"Single Malt is better than Blended"
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