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Airline Seat Economics: A Content-Rich Case Study and Discussion Activity for Microeconomics Ron Cronovich Carthage College Kenosha, WI carthage.edu.

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Presentation on theme: "Airline Seat Economics: A Content-Rich Case Study and Discussion Activity for Microeconomics Ron Cronovich Carthage College Kenosha, WI carthage.edu."— Presentation transcript:

1 Airline Seat Economics: A Content-Rich Case Study and Discussion Activity for Microeconomics Ron Cronovich Carthage College Kenosha, WI carthage.edu

2 Background Excel file: seat dimensions Since 1990s, – Seat width & pitch have declined – Filled seats % of capacity has increased from 70% to 85%

3 Flights diverted when fights b/w passengers broke out 8/24/2014 United Airlines flight from Newark to Denver diverted to Chicago 8/27/2014 American Airlines flight from Miami to Paris diverted to Boston 9/1/2014 Delta flight from NYC to W. Palm Beach diverted to Jacksonville

4 Brainstorm: What economic concepts can we use this case study to teach our students? externalities property rights cost-benefit scarce resources Coase adverse selection, market for lemons information, value of disclosure

5 Brainstorm: What economic concepts can we use this case study to teach our students?

6 Brainstorm: Discussion questions for property rights Are property rights well-defined? How could airlines better define them? Who has the rights over that 4”? Do the property rights change during flight? ***Why did fight happen???

7 QUESTIONS FOR CLASS DISCUSSION What costs were incurred as a result of diverting these flights? Who incurred them?

8 Why do you think the airlines put the rows so close together?

9 A consumer is shopping the web for a flight from O’Hare to San Diego. What factors does the consumer consider when choosing her flight? What information does she have about the different options?

10 How might things be different if airlines were required to disclose “seat pitch” to consumers when consumers are shopping for flights?

11 Consider these two questions: 1.How much do you think consumers would be willing to pay for 6” greater seat pitch? 2.How much more would airlines have to charge to make them willing to increase seat pitch by 6” Why are these questions important? What information would you need to answer each question?

12 Currently, seat pitch is 30” or so, which experts say is very cramped. Contrast the following scenarios: A.When customers buy their tickets, the airlines state that knee defenders are allowed B.When customers buy their tickets, the airlines state that knee defenders are NOT allowed, and that passengers have the right to recline their seats by X”. C.When customers buy their tickets, they do not know whether knee defenders are allowed, or whether passengers have the right to recline when doing so will harm the person in the seat behind them

13 A Coasian solution? What would Ronald Coase suggest? What would be required for Coase’s proposal to work? Does this seem realistic? Can you think of anything else that might work?

14 Any questions? me for class materials:


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