Public Policy in Private Markets

Debate 1

Announcements

Today: Debate 1 (clicker questions throughout) HW 3 due today

Thursday (3/8): in-class midterm Pick up HW 2 after class. i>clicker: 6 devices not registered (no

registration = no credit)

Announcements

3/8: Midterm 1 In-class exam (11:15-12:30), will start a couple of

minutes earlier to give all ample time. Review sheet posted, including sample questions

(40% multiple choice, 60% essay) Available to answer questions via email all the

time. On day of exam: 9-11 am @ my office to answer

questions

Debate 1

Group 1: Priscilla Lee, Angela Ho, Linh Troung (Spirit – plaintiff side) First video

Group 2: Devin Crory and Dave Esteves (Northwest – defense side) Second Video

Room for defense (5 minutes, max, per group)

i>clicker questions throughout

Controversy

What was the most controversial issue in this case?

1. Geographic market definition2. Product Market definition3. Calculation of relevant price (i.e.

revenue)4. Calculation of average cost

Guilty?

Do you think NW is guilty of monopolization?

1. YES

2. NO

Clarity of Presentation

Which side presented the clearest case?

1. Spirit (plaintiff)

2. Northwest (defense)

Strength of Arguments

Which side presented the strongest economic arguments?

1. Spirit (plaintiff)

2. Northwest (defense)

Overall assessment of quality of presentation

On a scale from 1 – 10 (1 poor, 10 outstanding), what would be your rating of the plaintiff’s side (Spirit)?

On a scale from 1-10 (1 poor, 10 outstanding), what would be your rating of the defense side (Northwest)?

Controversy

What was the most controversial issue in this cade?

1. Geographic market definition2. Product Market definition3. Calculation of relevant price (i.e.

revenue)4. Calculation of average cost

Guilty?

Do you think NW is guilty of monopolization?

1. YES

2. NO

Spirit v. NWest – Predatory Pricing?

Difficult issue Stop potential harmful behavior Allow vigorous competition

Occurs infrequently? Airlines may be exception

Multimarket contact

Spirit v. NWest – Predatory Pricing?

Difficult issue Stop potential harmful behavior Allow vigorous competition

Occurs infrequently? Airlines may be exception

a Airlines may be exception

Price: unreasonably low?

Price: unreasonably high?

Spirit v. NWest – Predatory Pricing?

Difficult issue Stop potential harmful behavior Allow vigorous competition

Occurs infrequently? Airlines may be exception

a Airlines may be exception

Big question: what would have been the “but-for” world?

Spirit v. NWest – Predatory Pricing?

Market Definition Geographic (BOS and PHL routes), why? Product: controversial – local passengers vs. all

passengers

Market power Large market share (however you compute it) Entry barriers (loyalty, counter space, landing slots) – 76/86

gates owned by exclusive leases

Intent: Predatory pricing P<AVC: how are costs calculated?

Spirit: include more costs NWest: a higher price

Spirit v. NWest – Predatory Pricing?

Spirit v. NWest – Predatory Pricing?

Intent: Predatory pricing is unclear, but:

No successful entrant afterwards Controversial: lots of assumptions

No final resolution yet (NW filed bankruptcy in 2007)

Exam

Last portion of review sheet today