Econ 540

ECO 540 Final Project Part Two Guidelines and Rubric

Overview The second part of the final project is a regulatory analytical paper. It is an analytical paper written from the position of a government regulator looking at the merger from Final Project Part One to identify any potential market distortion and what might be done to mitigate the impact to consumers or competitors. In this paper, you will evaluate the types of instruments that regulators have for regulating market power for the instruments’ effectiveness in this situation. What type of policy actions might the government implement for regulating market power? What would you suggest and why? Remember your analysis must address the cost/benefit of these decisions. Consider the change in HHI (concentration ratio) for the markets that the merging airlines dominate. For this paper, you must identify tools that would be more effective, rather than just challenging or prohibiting the merger. The project has one milestone. This milestone will be submitted in Module Eight. The final product will be submitted in Module Ten. In this assignment, you will demonstrate your mastery of the following course outcomes:

 Evaluate the implications of imperfect information upon economic decisions and behaviors

 Suggest regulatory policy tools for effectively evaluating and addressing market failures related to excessive market power Specifically, the following critical elements must be addressed:

I. Background and Issues a) Provide a brief historical background on the Department of Justice (DOJ) and its mission in this area. b) Identify the key salient issues specific to this merger in regards to this agency (DOJ). c) What is the HHI (concentration ratio) for the domestic airline industry, for the 10 markets in which the pre-merger airlines have the largest

combined market share, and for the two hubs for which the pre-merger airlines have the largest combined market share? What is the significance of this ratio in addressing the key salient issues?

II. Evaluation: Tools and Implications

a) Evaluate the types of instruments that the regulators use for regulating market power, specific to the issues you identified for this situation. What are the costs? What are the benefits?

b) Evaluate the implications of imperfect information upon economic decisions and behaviors of stakeholders, specific to these tools and this merger.

III. Recommendations: Suppose that a federal court has ruled that the DOJ did not show sufficient harm to prohibit the merger altogether, BUT that the DOJ

did show that harm will result in selected markets and/or hubs, yet did not present sufficient evidence to support one approach (divesting one of the airlines' routes in certain markets) over the other (divesting one of the airlines' presence at certain hubs).

a) Calculate the following ratios prior to preparing your recommendations. You must correctly demonstrate your full process for calculating these ratios; simply including the end result is not sufficient. Include your work as a table or addendum in your paper.

i. For the 10 city-pair markets in which the merged airline will have the largest share, calculate the post-merger HHI. ii. Suppose that one of the merging airlines gives up its flights in those 10 markets. Calculate the new HHI and estimate the lost revenue for

the merged airline. iii. For the two hubs in which the merged airline will have the largest share, calculate the post-merger HHI. iv. Suppose that one of the merging airlines gives up all flights in each of those two hubs. Calculate the new HHI and estimate the lost

revenue for the merged airline. b) Recommend an alternative policy approach that is justified by your evaluation. Specifically, you will evaluate the two approaches, comparing the

results in terms of achieving an HHI target of 2500 or below in the markets/hubs versus revenue loss to the post-merger combined airline, and make a recommendation.

Milestones Milestone One: Regulatory Background Issues and Market HHI In Module Eight, you will submit your regulatory background issues, including calculation of the HHI for the top 10 markets and top t2 hubs. This assignment should be formatted as a 3–4-page Microsoft Word document. This milestone is graded with the Final Project Two Milestone One Rubric. Final Submission: Regulatory Analytical Paper In Module Ten, you will submit your regulatory analytical paper. It should be a complete, polished artifact containing all of the critical elements of the final product. It should reflect the incorporation of feedback gained throughout the course. This submission is graded with the Final Project Part Two Rubric.

Final Project Part Two Rubric Guidelines for Submission: This assignment should be 3–4 pages in length with double spacing, 12-point Times New Roman font, and adherence to all appropriate writing conventions, including APA style citation format and a scholarly tone. Instructor Feedback: This activity uses an integrated rubric in Blackboard. Students can view instructor feedback in the Grade Center. For more information, review these instructions.

Critical Elements Exemplary (100%) Proficient (90%) Needs Improvement (70%) Not Evident (0%) Value

Background and Issues:

Historical Context and Mission

Meets “Proficient” criteria and is substantiated by scholarly sources that represent breadth of viewpoints on the topic

Provides historical background on Department of Justice and its mission in relation to merger situation

Provides historical background on Department of Justice but with gaps in connecting this background to merger situation

Does not provide historical background on Department of Justice

10

Background and Issues:

Key Salient Merger Issues

Meets “Proficient” criteria and is well qualified using specific scholarly examples

Explains key issues specific to this merger in sufficient detail to establish their importance

Explains issues relevant to this merger but with gaps in supporting detail

Does not explain key issues specific to this merger

15

Background and Issues:

Significance of HHI (Concentration Ratio)

Meets “Proficient” criteria and process is well executed with no extraneous calculations

Correctly calculates ratios and assesses their significance in addressing the key salient merger issues

Correctly calculates ratios but does not assess their significance in addressing the key salient merger issues

Does not correctly calculate ratios or assess their significance in addressing the key salient merger issues

15

Evaluation: Types of Instruments

Meets “Proficient” criteria and is well qualified using specific scholarly examples

Evaluates costs and benefits of the major instruments that the agency has available, specific to addressing this merger situation

Evaluates major instruments that the agency has available but with gaps in addressing costs and benefits applicable to this merger situation

Does not evaluate the major instruments that the agency has available

20

Evaluation: Implications of

Imperfect Information

Meets “Proficient” criteria and is well qualified using specific scholarly examples

Evaluates the implications of imperfect information upon the economic decisions and behaviors of the stakeholders specific to this merger

Evaluates the implications of imperfect information upon the economic decisions and behaviors of the stakeholders, but with gaps in establishing context to merger

Does not evaluate the implications of imperfect information upon the economic decisions and behaviors of the stakeholders specific to this merger

15

Recommendation: Ratio Calculations

Meets “Proficient” criteria and process is well executed with no extraneous calculations

Correctly calculates ratios, demonstrating all process steps in achieving end result

Calculates all ratios correctly but with gaps in process demonstrating steps in calculations

Does not correctly calculate ratios

8

Recommendations

Meets “Proficient” criteria and identifies the choice in each market that gets closest to achieving an HHI of 2500 at least negative impact to revenue

Recommends an alternative policy approach that is justified by evaluation

Recommends an alternative policy approach but with gaps in how it is supported by evaluation

Does not recommend an alternative policy approach

12

Articulation of Response

Submission is free of errors related to citations, grammar, spelling, syntax, and organization and is presented in a professional and easy-to-read format

Submission has no major errors related to citations, grammar, spelling, syntax, or organization

Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas

Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas

5

Earned Total 100%