Which of the Following Explains Why Frequent Flier Programs Reduce

question 36

Multiple Choice

Which of the following explains why frequent flier programs reduce contestability in the airline industry?

• A) Frequent flier programs make demand for each airline more elastic and thus lead to more competition.
• B) Frequent flier programs make demand for each airline more inelastic and thus lead to more monopoly power and higher prices.
• C) Frequent flier programs increase demand for each airline, ultimately leading to increased competition and lower prices.
• D) Frequent flier programs lead to lower switching costs and therefore less contestability in the market.

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Definitions:

Prepaid Insurance

Insurance premiums paid in advance by a company, recorded as an asset on the balance sheet until the coverage period comes into effect.

Depreciation Expense

The allocated portion of the cost of a company's fixed assets that is written off each year, reflecting the asset's usage and wear and tear.

Insurance Premium

The amount paid periodically to an insurance company by policyholders for covering their risk.

Income Statement

The income statement is a financial document that reports a company's financial performance over a specific accounting period, detailing revenues, expenses, and net income.