You have been hired as a consultant for the Australian Competition and Consumer Commission (ACCC, https://www.accc.gov.au/). You are working in the division that is responsible for regulation of the airline industry. Your manager has been informed that Qantas (Q) and Japan Airlines (JA) are planning to apply for an authorization of a joint business agreement to fully coordinate their air passenger and cargo operations between Australia and Japan.

1. Now assume that each airline is free to set weekly number of flights between two countries, but each firm can communicate (via the business press) what they plan to do first. Using an economic model, show that it might be difficult to sustain a cooperative (high profit) outcome. (Hint: what firms communicate may not be credible.) [3points]
2. This question requires you to think more broadly than the airline industry, given that in Australia, firms are not allowed to explicitly coordinate their prices. Are there other ways in which two large firms can try to avoid being caught in a competitive outcome? Briefly, discuss the relevance of these alternative strategies to airline industry.[3points]