Examine the Rivarly among existing competitors and the threat of Essay

Examine the Rivarly among existing competitors and the threat of substitute product in low cost airline industry in Europe - Essay Example Therefore, there should be checks and balances put in place to control the competitiveness among industries of low cost airline in Europe (Airlines Industry Profile: Europe, 2014, p. 4). This paper examines the rivalry among the competitors and the effect this has on the profit potential. Moreover, it also unravels the threats of substitute of a product in low cost airline industry in Europe. As asserted by Cameron and Quinn (2011, p. 2), airline industry has changed largely due to deregulation act of airline that occurred in America. These effects of deregulation act that occurred in America extended to the entire world. The results of liberalization of airline industry resulted in the emergence of low cost airline. The act helped in abandoning the status quo of restrictive pricing model that inhibited the growth of airline industry. Deregulation act helped in removing the state control over airline routes and it promoted the entrance of other airlines into the market (Airlines Industry Profile: Europe, 2014, p. 9). Therefore, the act exposed the airline industry to competitive market forces that have resulted to rivalry among different firms. Nonetheless, the passenger’s fares decreased in a number of market because of the growth of competition in the industry. The competition came because of new entrance of airline of low cost into the market (Airlines Industry Profile: United Kingdom 2014, p.8). The strategy of low cost airline have been so appealing especially to traditional airlines and this led to Southwest airline being the pioneer to introduce low fares airline for short routes. In Europe, deregulation act helped in emergence of the first European low cost airline after which, rivalry competition have dominated the market due to high number of low cost airlines. Low cost airlines have lower cost compared to the cost of their competitors. The

International trade Essay Example | Topics and Well Written Essays - 1750 words

International trade - Essay Example It will then look and how tariffs, quotas and subsidies affect real income in small countries. Lastly, it will look at arguments against free trade and their validity from a national perspective. The Ricardian Model of International Trade The Ricardian model of international trade is one of the earliest models of international trade. This model of trade emphasizes comparative advantage that comes about due to technological differences which act as a critical factor behind trading activities. Unlike the other theories of international trade that argue that trade only benefits certain countries and is unfavorable to others, this model contradicts this notion arguing that trade is beneficial for all countries that take part in the international trade (Feenstra, 2003). Its built on six basic assumptions: (1) Two countries are involved in the trade; (2) there are only two goods produced; (3) labor is the sole factor of production (Goodwin, Nelson, Harris, Roach, & Devine, 2009); (4) there is perfect competition across all markets such that goods are priced at cost in the nations producing them; (5) an assumption that labor is homogeneous within domestic boundaries, however, its productivity is different across the nations; and (6) the goods produced are viewed as homogeneous across the countries (Stern, 2011). According to this model of trade, gains from the trade become possible because of the comparative advantage. The basic idea is that if a country has to benefit from the trade, it is the country’s opportunity cost that matters and not its actual costs. The opportunity cost of a given product (a) is how much of some other product, (b); one country has to give up in order to produce one unit of the other product (a) (Carbaugh, 2010). Based on this explanation therefore, each country will stand to benefit only if it produces a particular good for which it has the lowest opportunity cost. A country’s opportunity cost is what will create gain in the fr ee trade. The gains from the trade are made possible due to comparative advantage that one country has over the other. Comparative advantage comes in if the opportunity cost of producing that good in terms of others goods is less compared to the other country. Thus if the opportunity cost of country A is lower than the opportunity cost of country B, then country A has a comparative advantage over country B. Therefore both countries benefit from the free trade if each country exports the goods with which it has a comparative advantage over the other. The Heckscher-Ohlin (H-O) Model of Trade Heckscher and Ohlin in there theory explain that the basis for international trade is due to factor endowments. This theory is an advancement of the Ricardian model of international trade that advocated for the comparative advantage as the basis for international trade. The Ricardian model failed to explain how the comparative cost advantage exists (Goodwin, Nelson, Harris, Roach, & Devine, 2009). This theory on the other hand proposes that this difference in comparative costs is due to: (1) differences in endowment of the factors of production; (2) the fact that production is dependent on the factors of production which are used with different degrees of intensity in the two countries. Therefore, this theory advances that the differences in factor intensities in the production functions of goods and the actual differences in relative factor endowments of the countries which explain international differences in the