Competition would be a valid rationale if the products were the same, and the costs were the same. But in the examples, they aren't. With Airline B below, I think Airline B is shooting themselves in the foot by charging the same price as the direct route. The only exception is if their costs were that much lower in running it through the hub, which for most is not the case. (Though, FedEx does this marvelously.) In my opinion, saying no to business is crucial. If capacity was unlimited, and the incremental cost of capacity was linear, no big deal. But planes cost money, and planes consume fuel and labour. You wrote: "Airline B has to charge the same if it wants the passengers who are flying between the two cities." My point is that Airline B shouldn't want those passengers. In this obvious example, they cost too much to have as customers. Why would anyone actively pursue business that you are blatantly going to loose money on? Are they hoping to make it up in excess baggage and change fees? I constantly joke in my practice about the comment that a (fictional) naive business person made: "I loose a dollar on every widget, but I make it up on volume." Considering the US airline industry since 1931 has a total industry profit of less than zero, I'm wondering if the giant egos running most of the airlines might actually believe this! An interesting discussion... Matthew On Thursday, September 18, 2003, at 12:29 PM, damiross2@xxxxxxxxxxx wrote: > Go back to Economics 101. Competition (i.e. the marketplace) DOES > force > airlines to charge the same, in any business. > > Example: > Two cities have a large number of passengers flying between them. > Airline A > flies nonstop between them while Airline B needs to send them through > their > hub, which happens to be 200 miles out of the way. Airline B would be > shooting > itself in the foot if it decided that the competition didn't matter > and charged > a higher fare due to the longer distance using the hub. > > So competition DOES force Airline B to charge the same if it wants the > passengers who are flying between the two cities. > > David R