CALIFORNIA STATE UNIVERSITY, HAYWARD

COLLEGE OF BUSINESS AND ECONOMICS

MANAGERIAL ECONOMICS

GUIDELINES FOR CASE ANALYSIS

Northwest/Republic Airlines Merger

I. MAIN ISSUES

1. Concentration:

(i) What are the typical measures of concentration, how do they measure concentration and what are the DOJ's guidelines concerning these measures?

(ii) Is the DOJ right that the merger will significantly increase concentration? Does the evidence (Ex. 2, 3, 8, 10, 11) support either them or the DOT?

2. Barriers to Entry and Airline Hubs:

(i) What is the hub-and-spoke system and what system did it replace?

(ii) Are hubs a major barrier to entry? What is the evidence that can be marshalled to support either the DOJ or the DOT ( Ex. 4, 5, 6, 7, 10, 11, 12, 13)

(iii) What role do feed ratios (please define) and load factors (please define) play in assessing barriers to entry?

3. Contestability:

(i) What is the contestability of a market and how can it be assessed?

(ii) What is the contestability of airline markets and what evidence (e.g. statistical studies cited by Alfred Kahn can be used to judge this issue)?

4. Benefits and Costs of Mergers:

(i) What are the potential benfits from a merger?

(ii) How can they be compared to the costs of a merger?

(iii) Do the benfits justify the costs in the case of NW/Republic?

II. ALTERNATIVES (EVALUATE EACH)

1. Reject the merger

2. Accept the merger

3. Auction airport landing slots

4. Privatize airports

5. Other

Please use the data in the case to support your arguments on these issues and look at the questions at the end of the case.