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Public Policy in Private Markets

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

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Public Policy in Private Markets

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  1. Public Policy in Private Markets Debate 1

  2. 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)

  3. 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

  4. 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

  5. Controversy • What was the most controversial issue in this case? • Geographic market definition • Product Market definition • Calculation of relevant price (i.e. revenue) • Calculation of average cost

  6. Guilty? • Do you think NW is guilty of monopolization? • YES • NO

  7. Clarity of Presentation • Which side presented the clearest case? • Spirit (plaintiff) • Northwest (defense)

  8. Strength of Arguments • Which side presented the strongest economic arguments? • Spirit (plaintiff) • Northwest (defense)

  9. 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)?

  10. Controversy • What was the most controversial issue in this cade? • Geographic market definition • Product Market definition • Calculation of relevant price (i.e. revenue) • Calculation of average cost

  11. Guilty? • Do you think NW is guilty of monopolization? • YES • NO

  12. Spirit v. NWest – Predatory Pricing? • Difficult issue • Stop potential harmful behavior • Allow vigorous competition • Occurs infrequently? • Airlines may be exception • Multimarket contact

  13. Spirit v. NWest – Predatory Pricing? Price: unreasonably high? • Difficult issue • Stop potential harmful behavior • Allow vigorous competition • Occurs infrequently? • Airlines may be exception • a • Airlines may be exception Price: unreasonably low?

  14. Spirit v. NWest – Predatory Pricing? Big question: what would have been the “but-for” world? • Difficult issue • Stop potential harmful behavior • Allow vigorous competition • Occurs infrequently? • Airlines may be exception • a • Airlines may be exception

  15. 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

  16. Spirit v. NWest – Predatory Pricing?

  17. 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)

  18. Exam • Last portion of review sheet today

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