Case Number: 5-108-005, Year Published: 2008
HBS Number: KEL351
Price Wars, Tacit Collusion, New Entry
Two Hawaiian airlines' cooperative environment is disrupted by the entry of a third competitor, Mesa Airways. The price war leads to fares as low as $0 and causes more than $100 million in losses in the first year with no end in sight. Industry risk factors for price competition were reduced in 2001 when the government granted a one-year reprieve from anti-trust laws, but increased dramatically after Mesa's announced entry. The learning objective of this case is to demonstrate how industry risk factors drive price competition. The initial circumstances are supportive of a tacit collusion between two firms; following the entry of the third airline, conditions were more conducive to a devastating price war.
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