Bargaining in Networks in the Airline Industry
The air transport industry is a great example of network exchange theory. The main players in the air transport industry are the airplane manufacturers, the airlines, and travel agents. These players interact with each other and airline customers. One of the key interactions is between the airlines and the airplane manufacturers. In this interaction, the manufacturers have a high bargaining power compared to the airlines. This is because most of the world’s commercial aircraft are made by two companies, Boeing and Airbus. There are numerous airline companies and they all need airplanes, so they each have very little bargaining power. Each airplane manufacturer has numerous outside options, and as a result, the airline manufacturers can charge higher prices. Since the airlines have very few outside options, they have to take these high prices. For this reason, the airplane manufacturers have higher profit margins than the airlines.
In fact, airlines have very small margins because they not only have low bargaining power compared to the manufacturers, but they also have low bargaining power with the customers. A customer choosing an airline has many outside options, and these options all offer a very similar product. An airline would lose a lot of business if they did not have competitive prices since customers would simply choose another airline, or choose not to fly at all. The fact that airlines have such low bargaining power across the board explains why airlines are constantly looking for cost cutting measures, often at the expense of the quality of flying.
Source:
http://marketrealist.com/2014/12/bargaining-power-airline-industrys-customers-suppliers/