As a result of recent mergers, three airlines now carry over 90 percent of one country's domestic traffic. Because prices...
GMAT Critical Reasoning : (CR) Questions
As a result of recent mergers, three airlines now carry over 90 percent of one country's domestic traffic. Because prices are almost always higher in a marketplace where a few companies can choose to reduce greatly the total supply of goods or services than in a marketplace with many competitors, air ticket prices soon will rise.
Which of the following statements, if true, would most seriously weaken the conclusion drawn above?
Passage Analysis:
| Text from Passage | Analysis |
|---|---|
| As a result of recent mergers, three airlines now carry over 90 percent of one country's domestic traffic. |
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| Because prices are almost always higher in a marketplace where a few companies can choose to reduce greatly the total supply of goods or services than in a marketplace with many competitors, air ticket prices soon will rise. |
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Argument Flow:
The argument starts by establishing the current market condition (3 airlines control 90% of traffic due to mergers), then applies a general economic principle about markets with few competitors, and concludes that airline prices will rise.
Main Conclusion:
Air ticket prices will soon rise because of the airline industry consolidation.
Logical Structure:
The author uses a cause-and-effect structure: Market consolidation (few companies controlling supply) leads to higher prices, based on the economic principle that limited competition typically results in price increases.
Prethinking:
Question type:
Weaken - We need to find information that would reduce our belief in the conclusion that air ticket prices will soon rise due to the airline consolidation.
Precision of Claims
The conclusion makes a specific claim about timing ('soon will rise') and applies a general economic principle ('prices are almost always higher') to this particular airline situation. The author assumes this consolidation will lead to supply reduction and higher prices.
Strategy
To weaken this argument, we need to find scenarios that break the connection between airline consolidation and rising prices. We can attack the assumption that fewer competitors automatically means higher prices, or show that other factors might prevent price increases despite the consolidation. We must respect the fact that mergers did happen and three airlines do control 90% of traffic.
This discusses airline overbooking practices, which is about seat management rather than pricing strategy. Even if airlines overbook flights, this doesn't address whether they'll raise ticket prices due to market consolidation. Overbooking could happen regardless of the competitive structure, so this doesn't weaken the connection between fewer competitors and higher prices.
This actually supports the conclusion rather than weakening it. If energy costs are rising and cutting into profits, airlines have even more reason to raise ticket prices to maintain profitability. This gives the consolidated airlines additional motivation to use their market power to increase prices.
Flight reduction at certain airports due to overcrowding is about operational logistics, not competitive pricing behavior. This doesn't address whether the three major airlines will use their consolidated market position to raise prices. Airport congestion issues are separate from market competition dynamics.
Further consolidation among the remaining smaller airlines (controlling less than 10% of traffic) wouldn't significantly change the market dynamics. The three major airlines already control over 90% of the market, so minor changes in the remaining 10% don't affect their pricing power or weaken the argument about impending price increases.
This is the correct answer because it provides a compelling reason why the airlines won't raise prices despite their market power. The airlines are heavily in debt and must keep their planes flying at full capacity to avoid bankruptcy. This financial pressure prevents them from reducing supply (which would require fewer flights) and may actually force them to compete on price to fill seats. Even though they have the market position to raise prices, their financial constraints make this strategy counterproductive to their survival needs.