Justice Department Probes Airlines for Collusion
by: Jack Nicas, Brent Kendall and Susan Carey
Jul 02, 2015

TOPICS: Antitrust, Collusion,Competition

SUMMARY: The four largest airlines in the United States are being investigated by the Justice Department for possible unlawful coordination. The concern is that airlines are limiting growth to protect profit margins. Airlines' goal is to avoid the rapid expansion that led to boom and bust cycles in the past. The industry consolidated since 2008. Mergers reduced the number of big airlines from 8 to 4. One concern with consolidation is how it affects prices. Fares are down 16.3% adjusted for inflation from their peak in 2000 which suggests a limited anticompetitive affect. The three largest carriers are the slowest growing airlines. Growth adds seats and capacity to the system but may limit financial performance. Regulators will need to prove whether airline business practices are anti-competitive.

CLASSROOM APPLICATION: Antitrust regulators have been more aggressive as they examine practices in many different businesses and industries. Regulators may view the airline industry's plans to control capacity and keep airfares high as anti-competitive, but companies see it as good business practice. The perspective of regulators is consumer protection. It might be difficult to find the kind of evidence that represents a hard core agreement between the airlines. Both investors and companies understand the relationship between capacity and financial performance. The airlines respond that they compete vigorously. Lack of expansion isn't necessarily the results of collusion.

QUESTIONS:
1. Do a web search for the terms “antitrust” and “collusion” and use information found to explain what these business term mean.

2. Explain why the airlines are being investigated by the Justice Department.

3. Airlines responded to regulars with explanations for slow expansion of capacity (number of flights). What were their reasons?

4. What are some of the risks airlines face if they significantly expand capacity and the number of flights to destinations?   

In economics, we learn about production and relationship between input and output through a simple production function with two factors of production, namely, labor and capital. As simple as it is, this equation is very useful for both understanding and studying the dynamics of economic growth. For example, if we assume the production function of the whole economy is Q = f (K, L), where K is the economy’s stock of capital, L is employed labor and Q is the economy’s output, an increase in either labor or capital or both would lead to the growth of the output. We can also grow the economy by increasing labor productivity; that is the amount of output produced by one unit of labor during one production cycle. Following the 2008 financial crisis, which led to a partial collapse of the US financial system, the US economy, as well as the economies of many other countries, went into a severe recession. Although most of these economies have been recovering, the wages of the middle-class income groups in most industrial countries have not been increasing much. In fact, in the US, for example, from the mid-1980s until very recently wages stagnated, and the wage increases of the past two years have been very modest and hardly kept up with inflation. This has resulted in some level of discontent about the state of the economy in most industrial countries. Some observers attribute this structural changes caused by free trade and globalization and technological automation. As a result in some countries, including the United States, sentiments against free trade and globalization seem to be on the rise. President Trump's trade policies appear to be reflective of such sentiments. Do you agree that we should restrict trade and adopt protectionist policies and, possibly, discourage the development of automation technologies to protect middle-class jobs? Do you think such policies would lead to higher wages? Please do not copy from other posts.

A report summarized the results of a survey of 319 U.S. businesses. Of these companies, 209 indicated that they monitor employees' web site visits. For purposes of this exercise, assume that it is reasonable to regard this sample as representative of businesses in the United States.

(a) Is there sufficient evidence to conclude that more than 60% of U.S. businesses monitor employees' web site visits? Test the appropriate hypotheses using a significance level of 0.01. (Round your test statistic to two decimal places and your P-value to four decimal places.)

State your conclusion.

Do not reject H₀. We do not have convincing evidence that more than 60% of U.S. businesses monitor employees' web site visits.

Do not reject H₀. We have convincing evidence that more than 60% of U.S. businesses monitor employees' web site visits.    

Reject H₀. We do not have convincing evidence that more than 60% of U.S. businesses monitor employees' web site visits.

Reject H₀. We have convincing evidence that more than 60% of U.S. businesses monitor employees' web site visits.

(b) Is there sufficient evidence to conclude that a majority of U.S. businesses monitor employees' web site visits? Test the appropriate hypotheses using a significance level of 0.01. (Round your test statistic to two decimal places and your P-value to four decimal places.)

State your conclusion.

Do not reject H₀. We have convincing evidence that a majority of U.S. businesses monitor employees' web site visits.

Reject H₀. We have convincing evidence that a majority of U.S. businesses monitor employees' web site visits.   

Reject H₀. We do not have convincing evidence that a majority of U.S. businesses monitor employees' web site visits.

Do not reject H₀. We do not have convincing evidence that a majority of U.S. businesses monitor employees' web site visits.

You have just been accepted to nursing school. As a requirement, you have to have a tuberculosis (TB) test as well as a hepatitis B recombinant vaccine. The nurse who administers the TB skin test explains that if significant swelling occurs around the injection site, you will need to have chest x-rays to determine if you are infected with Mycobacterium tuberculosis. On the morning of the second day after the skin test, you awake to find your arm red and swollen in an area about the size of a quarter around the site of the test. It is also tender to the touch. Now you are really worried. Could you have TB?

1. Why does the reaction to the skin test take 36-48 hours to show up? Explain.

2. If you have a tuberculosis infection, why doesn’t the whole body, or at least the respiratory tract, react when the antigen is injected during this diagnostic test? After doing a chest x-ray, your doctor says the results are inconclusive. So, you are put on a six-month course of isoniazid to be safe. About six months later, while sitting in your medical microbiology class during a lecture on tuberculosis, you suddenly realize why you had that positive reaction to the skin test six months earlier. It had nothing to do with being infected, but was because you were born in Norway and your family moved to the United States when you were four years old.

3. What is going on here? Discuss in detail.

4. A while later, you told a friend of yours who is HIV-positive about your TB scare. She said that her doctor doesn't typically use the TB skin test on her, even though people with HIV are more susceptible to TB. Why is the skin test not always a reliable TB test for those with HIV?

QUESTION 8

1. Unemployment insurance

10 points   

QUESTION 9

1. Suppose that some country had an adult population of about 46 million, a labor-force participation rate of 75 percent, and an unemployment rate of 8 percent. How many people were employed?

10 points   

QUESTION 10

1. According to 2014 data on the U.S. population, which of the following was correct for the adult population of prime working age, ages 25-54?​

You have now been asked to study the yearly mean sales of cameras of two competing models at stores throughout the United States. You will also study the proportions of cameras sold that include certain lenses at a large store that sells both lenses. The specific questions you will be asked to answer are stated below. In addition, appropriate sample data for the studies you will be accomplishing are given below. Answer the following questions concerning the situations posed.

2) Once again, as has happened in the past, you are very much in doubt concerning the validity of the known population standard deviations, this time for each camera body, in the yearly sales of the two brands of camera bodies. Therefore, you wish to conduct your study with the knowledge that the population standard deviations are unknown. You collect random samples of the yearly sales of the two camera bodies at populations of stores. The data that has been collected is shown in appendix one below. At both the 10% and 5% levels of significance, are there any differences in the mean sales of the two camera bodies at the two populations of stores? Again, if the software makes it possible, find both 90% and 95% confidence intervals for the difference in the mean sales of the camera bodies between the two populations of stores. Explain the meanings of these intervals. Then, if possible, based upon the procedures you have chosen to address the problem, use the intervals to supplement and test whether there is a difference in the mean sales of the two camera bodies between the two populations of stores.

Nikon D5:

131     145     150     156     176     154     138     122     130     235     165     168     221     229     154     155     154     160     154      144     240     143     232     238     130

Canon Model:

      138     140     237     147     170     155     232     228     135     130     161     160     220     229     155     158     150     250     248      246     139     233     133     230     126    

45. If the economy is operating well below potential GDP, what will be the effect of an increase in aggregate demand?   
     
          Real GDP will fall, and the price level will fall
          Real GDP will rise, and the price level will change very little
          Real GDP will rise, and the price level will rise significantly
          It is impossible to predict what will happen to real GDP, but the price level will fall
          It is impossible to predict what will happen to the price level, but real GDP will fall



46. Which expenditure component of GDP is most affected by the real-balances effect?   
     
          Consumption
          Investment
          Government expenditures
          Net exports



47. During the period from 1950 to 2010, how did recessions in the United States compare to those in earlier years?   
     
          They were longer but milder than earlier recessions
          They were longer and more severe
          They were shorter and milder
          They were shorter but more severe
          They were about the same



48. Why is the aggregate supply curve flat when well to the left of potential GDP?   
     
          Many resources are lying idle
          Producers are unwilling to manufacture more unless the price level rises
          The government has established a price level floor
          The real balances effect is stronger than the foreign trade effect
          Trick question: the aggregate supply curve is not flat to the left of potential GDP



49. What effect will an outward shift in aggregate supply have on the price level in the short-run?   
     
          Price level will fall
          Price level will rise
          Price level will not change

                                                                                                                                                       

50. Which of the following events would cause aggregate supply to increase? (check all that apply)
                                                                                                                                                           
          A new invention that reduces the cost of making computer chips
          Improvement in fracking techniques allow new pumping of oil from previously played out oil fields
          A war in the Middle East that shuts down the Saudi Arabian oil fields
          A rise in marginal tax rates on labor income
          A fall in the international value of the dollar

(1 point) A researcher is interested in whether the number of years of formal education is related to a person's decision to never smoke, continue to smoke, or quit smoking cigarettes. The data below represent the smoking status by level of education for residents of the United States 18 years or older from a random sample of 475 residents. Round all numeric answers to four decimal places.

1

1. Select the name of the test that should be used to assess the hypotheses:

H0H0: "Smoking Status" is independent of "Education Level"

HAHA: "Smoking Status" is not independent of "Education Level"

A. X2X2 goodness of fit
B. X2X2 test of independence
C. X2X2 test of a single variance

2. Under the null hypothesis, what is the expected number for people with an education of Some college and a smoking status of Never?

3. Calculate the X2X2 test statistic.

4.What was the contribution of Never smokers who attended Some college toward this test statistic?

5. What are the degrees of freedom for this test?

6. What is the p-value for this test?

7. Based on the p-value, we have:
A. extremely strong evidence
B. very strong evidence
C. strong evidence
D. little evidence
E. some evidence
that the null model is not a good fit for our observed data.

8. Which of the following is a necessary condition in order for the hypothesis test results to be valid? Check all that apply.

A. There must be an expected count of at least 5 in every cell of the table.
B. The population data must be normally distributed.
C. There must be at least 10 "yes" and 10 "no" observations for each variable.
D. There must be an observed count of at least 5 in every cell of the table.
E. The observations must be independent of one another.