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Public Policy Debate on Monopolization: Spirit Airlines vs. Northwest Airlines

Join the lively debate exploring the public policy implications of monopolization in the airline industry, highlighted by the Spirit Airlines vs. Northwest Airlines case. Students will evaluate key issues such as market definition, pricing strategies, and the legality of predatory pricing. Examine contrasting arguments from both sides, assess clarity and strength of presentation, and reflect on the most controversial aspects of the case. The event includes clicker questions for audience engagement, with valuable insights into economic arguments surrounding market power and competition.

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Public Policy Debate on Monopolization: Spirit Airlines vs. Northwest Airlines

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Presentation Transcript

  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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