MBAA 522 Problem Set 7 Complete Solution
1. Between 1995 and 1997, American Airlines competed with several low-cost-carriers on routes from Dallas/Fort Worth. The US Department of Justice sued alleging predatory pricing. A judge disagreed. Read this article from the Wall Street Journal (available through the Hunt Library ProQuest database):
Wilke, J. R., & McCartney, S. (2001, April 30). American Airlines secures antitrust win --- Judge dismisses U.S. case, says competitive moves were company's right. Wall Street Journal (Eastern edition), pp. A.3.
The antitrust legal standard for predatory pricing is pricing below variable or marginal cost. Discuss why the plaintiffs lost this case in the face of what most lay people would consider predatory pricing. Hint: Consider how to compute marginal cost for an airline.
MBAA 522 Problem Set 7 Complete Solution
cost airlines are lower than the marginal cost. Moreover, the court was of the view that the marginal cost depends on the capacity of ...
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