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Thursday, December 05, 2002 |
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Friday, November 08, 2002 |
"Air Canada Rides Out Stormy Weather", WSJ October 28, 2002.
"Air Canada this summer started four niche airlines: Tango (a low-cost, low-fare national carrier), Zip (a low-fare carrier in Western Canada) ... [and is considering niches focused on] cargo service and business travel." (See also Air Canada Vacations and Jetz -- the new business travel-oriented subbrand.) What do you make of this "subbrand strategy"?
Demand issues: Is flying Tango substantially different than flying on a standard flight with a cheap, restricted ticket? What about flying Jetz vs. on a standard flight in business class?
Cost issues: Are cost advantages to segment-specialization great enough that we can ever expect airlines to totally specialize in this way (for all of their flights)? In particular: who is more vulnerable to entry, an airline that carries several types of passengers on several flights or one that carries only a single type of passenger on each flight?
Price Discrimination Issues: Does Tango need to require advance purchase and a Saturday night stay to segment the market of business travellers from leisure travellers? (One can argue this both ways: What facts could we learn to decide the issue?)
[Categories: Airlines, Demand, Market Definition, Price Discrimination]
3:16:28 PM 
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Thursday, October 31, 2002 |
"Chubb Extends Family Protection: Coverage for Kidnapping, Carjacking, Other Crimes To Be Rolled Out Nationally", WSJ October 23, 2002.
What would adverse selection and moral hazard mean with respect to family protection insurance? Who buys this insurance? Is there a significant adverse selection of families who purchase family protection?
This policy is only sold bundled with premium home owner's insurance. Is this important?
Why doesn't Chubb's policy cover ransoms? Explain why this would lead to an incentives / moral hazard problem that could make this coverage less profitable.
[Categories: Adverse Selection, Insurance, Moral Hazard, Price Discrimination (Bundling)]
3:45:32 PM
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"Totally Wired at 32,000 Feet: Airlines Set to Install E-Mail, Web Links for Use In Flight", WSJ October 24, 2002.
By offering "JetConnect" services at the low price of $6.00 for a flight, Continental seems to have shifted to an approach that aims to induce high- and low-demanders to purchases these services (Approach 2 in my terminology) rather than price very high to only attract high-demanders (Approach 1, such as charging $4.00 per minute on Airfone). Could airlines do better by offering a menu of choices (Approach 3)? What offerings and price points might you suggest?
[Categories: Airlines, Price Discrimination]
3:37:14 PM
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Sunday, October 27, 2002 |
"Web Effect is Greater on Airline Revenue Than Costs", WSJ, October 17, 2002. Do you agree with this article's analysis? If so, what should airlines do now vis-a-vis their internet strategy?
[Categories: Airlines, Costs, Market Definition, Price Discrimination]
12:03:52 PM
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"Industrial Gases: Pressure Builds in Recession" and 'The Middle East: Natural Advantages Fuel Increasing Investment", Financial Times Special Section: The Business of Chemicals, October 14 2002.
First article: As we learned in class, one potential advantage of servicing is that it provides a means to meter customer consumption and hence to price disriminate through a two-part tariff. Is this feature important, do you think, to industrial gas providers, say, supplying bars and clubs?
[Categories: Price Discrimination]
Second article: Apparently, the Middle East commitment to expand capacity has deterred others from expanding. Can we conclude, then, that expected future gas prices given the Middle Eastern expansion are lower than what would be necessary to justify present investment by other, higher cost producers? What if the Middle East had a smaller cost advantage? Could they still deter expansion by others in the face of expected high future prices?
[Categories: Costs, Game Theory]
11:58:25 AM
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Wednesday, October 02, 2002 |
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Thursday, September 26, 2002 |
"Microsoft Unveils Media Software", WSJ September 5, 2002.
"The [media] software is a `strategic entry point' for Microsoft into the more traditional markets":
--1-- "Technologies that are showing up in this product first could easily end up in other offerings."
--2-- "Microsoft has an advantage since it can bundle its digital-media offerings with its other, often-dominant software."
[Categories: Costs (Economies of scope), Demand (Network externalities), Microsoft, Price Discrimination (Bundling)]
2:30:50 PM
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Tuesday, September 24, 2002 |
"American Express Retires The Classic Green Card: Yielding to Demand for Miles, It Will Offer More Rewards, But Debit-Card Threat Looms", WSJ, September 24, 2002.
"Membership Rewards enrollees spend four times as much on their AmEx cards as cardholders who don't get points. So in an effort to entice all its cardholders to spend more liberally, the company decided to put every charge-card customer in its Rewards program." Are new Rewards program members likely to spend as much as existing program members?
Most challenging questions: Isn't AmEx better off under its old system offering two options (Rewards program and non-Rewards) since then it can price discriminate (through self-selection)? Explain why the following is possible: "As long as members are given a choice as to whether to be Rewards program members, the Rewards program will always be unprofitable (even with zero fixed costs). But if all members are automatically enrolled in Rewards, then the program will be profitable."
[LINK: demand substitutes (1,2), network externalities (7), self-selection schemes (11), moral hazard & adverse selection (18,19) & as source of "market failure" (19)]
6:03:29 PM
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© Copyright 2002 David McAdams.
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