Course Project Feedback: Managerial Economics 205
Autumn 2010
I really enjoyed reading your projects. Thanks for putting the time and effort. Here are some comments.
I have also pasted at the end the group comments that I have received so far.
Tuesday Presentations
Group 9 - Victoria Hotel: (A-) Good analysis of the upper-end segment of Victoria hotels. You picked
up many relevant points and made proper use of economic terminology most of the time. You mention
the concept of experience curve to describe worker training and productivity. This is not correct
because most productivity gains happen early in the workers’ tenure while the worker is training or soon
after training. After that, productivity probably quickly peaks. Your analysis of hotel amenities is well
taken. You could have discussed the role of repeat business and loyalty programs. You could have
discussed how large branded hotels compete with smaller boutique ones. There are also very specific
features associated with price competition in this industry (role of travel agents, low variable cost, fixed
capacity, revenue management). Your report has a lot of information and the argument sometimes
does not flow very nicely (for example, the last two paragraphs are weak---need a better conclusion).
Group 6 - Real Estate Agent: ( A-) Good job at researching the industry and at using economic concepts.
You identify some of the key elements that contribute to a real estate business: the role of brand, talent,
reputation, and access to MLS. But these points could have been developed further and integrated in a
more coherent write-up. You could also have discussed the role of scale economies that are common to
matching intermediaries (similarly as eBay---buyers want to meet the agent with most houses and
sellers the one with most buyers). You discuss the issue of commission but you could have developed
the implications for price competition. You mention at several points in the report the role of important
macroeconomic variables (interest rate, job security, income, economic growth). Try to integrate these
points together.
Group 12 - Real Estate: (B+) I had asked you to study real estate agent (same as group above). There is
no such thing as the real estate industry. Real estate is a market for an asset (home property) with
many different types of suppliers (home owners, investors, developers). The supply side is very
heterogeneous and this greatly complicates the analysis of cost. The demand side is also tricky because
there are first time buyers, those who want to upgrade or downgrade, those who buy for investment...
This explains why you had to struggle so much in your report. Still, you make some good points and
make good use of economics. To further clarify the distinction between a market and an industry, you
can take a look at the discussion on page 11 in the textbook.
Group 4 –Local Victoria Restaurant: (A) Carefully researched project and good use of economics. You
have discussed many important features of cost and demand that you properly document your points
with insightful descriptions. You nicely identify the main problem with your industry, that is, risk. As we
discussed in the class, you could have asked yourself whether the large dispersion in restaurant
popularity is due to luck or some other thing. Luck probably plays a role but talent (of the manager and
cook as well) also plays a large role. A key issue you could have discussed more is access to the best
talent and at what cost. I am not sure that Victoria is saturated. Restaurant is one of these industries
where there is a lot of entry and exit and where there will always be some firms that make large profits
while other barely break even.
Group 10 – Home construction: (A ) You did a good job at narrowing down your analysis to something
manageable. You present many important elements both on the demand and supply side and you do a
good job at applying economic analysis. There are a few elements you missed. You want to discuss the
role of talent in home construction. It seems there is much variance in the quality of specialized workers
(plumbers, carpenters…) and an important issue about home construction is to have access to these
people. Are they independent or employees? You also want to discuss the role of home differentiation
and the cost that this implies. It seems that the role of differentiation increases with home value.
Cheaper homes are more likely to be standardized. Isn’t this an important issue? You present some
interesting quantitative information when you discuss market trends. Your analysis of the cost structure
could have benefited from more quantitative information.
Wednesday Presentations
Group 1 – Logging: (A) You nicely and thoroughly researched your industry but this was more
transparent from your presentation than from reading your report. Your report has a lot of good
information but you could have brought some of your points home by presenting figures on different
cost components, for example. You should take a clear stand on whether this is a commodity market
with many players (competitive market) or whether differentiation plays a role. You make many good
points. For example, your analysis of macro trends and the role of the US housing market are welltaken. But you could bring that point home by documenting how much prices have decreased since the
housing market bust. This would be a good place to start talking about the role of price competition and
whether suppliers can coordinate to maintain price levels through the business cycle. Related to that
point, you argue that storage is expensive because the logs depreciate. But storage keeps prices from
falling. To conclude, I think you have many great elements but your report would benefit from more
structure and quantitative information to illustrate your points.
Group 7- Cranberry Farming: (A+) Your cost analysis is convincing but I do not agree with your
conclusion about entry. Opening a 40 acre farm at $40K per acre would cost $1.6m which is not a large
sum for a large farm operator or even for that matter for a small farm entrepreneur. Maybe it would
have helped to look at what has happened to entry over time. You could have connected your analysis
with the case we did in class. What has happened to the cranberry price and production since the case
was written. You nicely point that that a large fraction of cranberry farmers sell through a coop. You
could have discussed in more details the role of the coop and how it may change the nature of price
competition. I really enjoy reading your analysis of demand and the role of marketing. You can also
look at the comments for group 11 who studied the same industry.
Group 5 – Seaplane transport: (A+) You have nicely researched your industry and you expose your
findings in clear and fluent manner. Your report is an easy and interesting read. Your analysis of cost
and demand is thorough. In your analysis of future profitability, you should ask whether the dominant
player has market power and whether it can set prices. I was surprised that West Coast Air and Harbour
Air were allowed to merge and I am now surprised that it has not had a large impact on price. But let’s
wait. A main source of ‘scale economy’ is due to fact that some consumers have a demand for flexibility.
A larger firm can offer more departure times and consumers value such choice. It seems that there are
different segments of demand. The business segment depends on the growth of large port towns as
economic centers (Vancouver, Victoria). Another segment depends on the demand for commuting
across islands that could be driven by recreational activities, luxury homes, and also logging…
Group 13 - Seaplane transport: (A) You have done a good job at researching the industry. Your report
makes some good points but it is sometimes difficult to follow your argument (e.g. discussion of
economies of scale, gas price). Some of the comments I wrote for group 5 above also apply. To repeat,
you should ask whether the dominant player (West Coast/Harbour) has market power and whether it
can set prices. I was surprised that West Coast Air and Harbour Air were allowed to merge and I am now
surprised that it has not had a large impact on price. But let’s wait. A main source of ‘scale economy’ is
due to fact that some consumers have a demand for flexibility. A larger firm can offer more departure
times and consumers value such choice. It seems that there are different segments of demand. The
business segment depends on the growth of large port towns as economic centers (Vancouver, Victoria).
Another segment depends on the demand for commuting across islands that could be driven by
recreational activities, luxury homes, and also logging…
Group 3 - BC Wine: ( A) You did a good job at researching your industry. You make many good points
but your report could benefit from some rewriting. Some side issue probably do not require as much
emphasis (e.g. is the role of production license so important?). Your use of economics is sometimes
confusing (I could not understand why the land could be a fixed or sunk cost depending on whether it
was rented or purchased). You also argue that machinery and failed crop are sunk cost which is not
correct. I am wondering how a BC wine producer can compete against a cheap Chilean winery and to
what extent the BC wine industry is protected by regulation and the BC wine monopoly. It seems that
the BC government plays an active role in keeping prices high which benefits BC wine producers. You
could have further developed the role of government regulation on demand (access to wines), prices,
and ultimately industry profitability. The issue of land price also seems another threat for the industry.
Your analysis of the demand side was interesting especially if a large fraction of BC wines end up being
consumed locally.
Wednesday Presentations
Group 14 – BC Wine: (A) You did a good job at using economics. You mention the role of wine tourism.
Are most players active in wine tourism? What fraction of revenue comes from wine tourism? Another
issue of interest would be to know the extent to which BC wine producers rely on the BC market for
demand. What fraction of BC wines is consumed locally and what fraction is exported. And what the
role of BC regulations in that outcome (see comments to group 3 above)? Your analysis of demand, and
the role of wine awards and quality, was very insightful. Do you think scale matters? Can a large
producer more easily produce quality in a reliable way? Overall, you make many good points but your
report could have been better organized. The report could have focused on fewer ideas in order to
improve the overall flow.
Group 2 - Vancouver Film Industry: (A-) You did a good job at analyzing a difficult industry both on the
demand and supply side. You could try to name the main firms and give a bit of background
information. You should try to support your cost analysis with quantitative information, even if
approximate. Your analysis of profitability emphasizes the role of exchange rate, which will play an
important role, but is largely outside the control of the firms (all they can do is hedge but this is costly
and short term). You could have also discussed other factors related to internal competition such as
differentiation, negotiations with artist writer and other skilled workers... A point that seems important
in the film industry is that there are gains from clustering all different talents who are involved in the
making of a movie together in the same geographical area. This greatly reduces the chance that new
production centers will emerge. This would be called network economies (not scope economies as you
hint in your project). Another issue that you have discussed is the role of institutions and collective
bargaining protecting the different professions that contribute to a movie. It would also be interesting
to know how firms compete for projects.
Group 8 – Coffee Shops: (A-) You did a good job at identifying the main segments in your market and
explaining how they interact. You make the important point that location and product are important
factors in your industry. Your analysis of cost is useful but there is no need to discuss all cost concepts
one after the other. Rather, you could try to write an overview and the exposition would be more
fluent. Also, you could try to back up some of your statements with quantitative information (even if
approximate). I do not agree with your analysis of price competition. You say that price competition is
not an issue because demand is inelastic. But a shop with market power (because it has no nearby
competitors, for example) can increase prices by 5 or 10 percent and this can have a great impact on the
bottom line if margins are small. In addition, there are instances of ‘price wars’ amongst chains. Part of
the confusion may be due to the fact that you mix together low end drip coffee offered by fast food
chains and premium coffee. The demand for these products is very different. I enjoyed your analysis of
Starbucks’ saturation strategy.
Group 15 – Victoria Hotel: (A-) Your report makes a decent use of economic principles. You present
some interesting pieces of information (on margin and revenue decomposition for different hotel sizes)
but overall you could have used quantitative information more systematically to support your claims.
You could have discussed the role of price competition in more details. In particular, how much to
prices fall in the downturn or instead do occupancy rates fall. What fraction of rooms is sold through
intermediaries (Expedia) and what are the implications for price competition and profitability? You
nicely identify the main travel segments in Victoria and their characteristics. Again, what are the
implications for price discrimination and revenue? Your class presentation was very poor. You should
try to communicate your work more effectively.
Group 11 – Cranberry: (A-) You did a good job at researching your industry and came up with insightful
details about the industry both on the cost and demand sides. One limitation is that some of your
numbers about market prices were outdated. You could have tried to connect your research with the
case we did on cranberry and discussed whether the market managed to rebound since 2001. Your
discussion of the vertical chain and in particular the role of the coops is a bit sketchy and confused. You
should explain the difference between a small farmer and the coop and the relation between the two. I
can see why the coop can help independent producers coordinating on output. I do not see, however,
how the coop can prevent entry in a profitable industry. It is not clear to me whether I should think of
the cranberry industry as competitive or not. You can also look at the comments for group 7 who
studied the same industry.
Group comments’
(Group 8)
When reading through Group 9s industry project “The Hotel Industry in Victoria BC”, I noticed many
strengths throughout and a few weaknesses as well. The project was very well laid out with a brief
introduction of the hotel industry, followed by an in-depth analysis of the cost structure. The next
section dissected the demand drivers and effects of demand with a conclusion about the future
profitability of the hotel industry.
The group analyzed the fixed costs with great depth but they failed to mention variable costs. However,
they documented the demand drivers very well, giving specific examples for what may occur if one hotel
decides to lower prices. This shows that they used their own critical thinking skills to generate a possible
situation in the industry and predicted how the firms would respond.
The analysis of future profitability for the industry was well researched with numerous sources to
support their facts. They also used precise definitions to explain certain concepts (eg. Monopolistic
competition) with which they further explained how it related to the hotel industry in particular.
Overall, I found the report well balanced out and easy to follow. There were a few grammatical errors
throughout the report, but in most cases it did not draw away from the well researched and accurately
represented analysis of the industry. I think this group covered all the main points and effectively
assessed the attractiveness of the hotel industry.
Group 11's Review of Group 10: The Home Construction Industry
This group did a fantastic job of organizing their report, due to the many variables concerned with home
construction I can see how this would have been a task. However, I would have liked to see a more in
depth analysis for entry costs, especially since I don't assume the cost to build a house from the ground
up to be very low.
Also with the shallow detail of learning economies, they haven't put into consideration the possibility
that people who have become more educated in their specific trade may decide to move to another
area which has a higher demand. Especially with trade schools located here in Victoria we conveniently
have a fresh slew of entry-level workers gaining experience here in town before moving on to bigger
locations.
In the groups conclusion of the attractiveness of the industry a specification would have been useful,
despite the fact that people are always on the search for homes does not imply that they will be
concerned in building or renovating their homes. Especially with the recession in place or if consumers
have any expectations for a recession they will not feel the need to make any investments until they feel
more secure.
I was, however, very impressed by the groups display of industry demand drivers, they seemed to take
in a lot of considerations and organize them neatly into three main points. The organization was what
most caught my eye with this report, I would have liked to see the conclusions gathered up into one
main thesis, but it was still great to see a summary at the end of each topic.
Overall, I think that Group 10 did a great job with their assessment despite the fact that they missed a
few important details. They covered the main points and described each one of them with clarity.
Group 4’s assessment of Group 5’s project
Group 5 assessed the sea plane industry in Victoria. One odd thing they mentioned is that there
is “fierce price competition” while at the same time mentioning that that the market is
effectively a monopoly (on the Vancouver-Victoria route) with the merger of the two big
players, West Coast Air and Harbour Air. With only one main player on that route, the idea that
there is aggressive price competition is not believable. Another odd thing is that while West
Coast Air and Harbour Air have merged, they called this an “oligopoly,” as if the two companies
were not the same.
Their final assessment of the industry is also not clear. They say a large amount of negative things,
but in the end finish on a positive note. The basis of this positive note is that tourism will continue
and that “[c]ompanies and the free market can also work to solve many of the problems in the
industry themselves.” This seems weak considering the large amount of negative points they bring
up, and particularly with the fact that the industry has consolidated and there is now one large
player on the main Victoria-Vancouver route. A more honest assessment would have been negative
one, with a firm assertion that it would not be a good idea to enter the industry, rather than the
vague slightly positive note that they end on.
Group 6 evaluation of 7
Your project successfully demonstrates the attractiveness of the cranberry farming industry to those
situated in areas supporting proper environmental conditions required to grow cranberries, and to
those able to support themselves for five years before turning a profit. The costs, generally fixed, are
well described in detail and it is clear your group did extensive research, also providing information
regarding what is required to obtain lowest per unit fixed costs. You explain the consumer base of
cranberries and cranberry products well, as well as the demand for these products increasing. You did
well in examining the future profitability of the industry, pointing out lack of substitutes, low entry
threat, and ability to make a large profit in the long run. Overall, the project thoroughly examines the
riskiness of the cranberry farming industry, highlighting the increasing demands, large costs and
profitability very well.
Group 5 evaluation of 6
Your project poses a well articulated examination of the market which is supported with good examples
and statistics. It is clear that your group has done a lot of research into the market and I like how you
were able to provide actual numbers in your estimates of the costs. Your examination of the future
profitability of the Industry is well thought out and informative. While your group did a good job
evaluating and presenting the cost relevant to the industry you did not categorize these costs (fixed
variable etc.). You did a good job examining the demand for the industry but overlooked a few things
such as the effects of HST and the possibility of people selling their houses privately. Over all I think the
project succeeded in assessing the attractiveness or in your case the unattractiveness, of the industry.
Analysis of Group 13’s Industry Project
Group 13 does a fair job analyzing the cost structure of BC’s float plane industry. However, there
are a few shortcomings. First of all, the group points out that there are only two real players in the
floatplane industry on the west coast. This is simply not true. While there is a monopolistic aspect to
some more obscure routes along the West Coast, the main and most profitable ones are subject to
fierce price competition. Due to this competition, the services offered by floatplanes are at the mercy of
the free market. The floatplane companies are not price setters. However, the group does do well to
note a constant threat of expansion on certain routes from other players if firms get too lazy with their
prices.
As for the demand side, Group 13 does a good job of recognizing for whom the product is
tailored towards – more affluent individuals who place a higher cost on time. As well, they recognize the
major threat to demand. If a substitute becomes more appealing and a floatplane is too costly, an
individual will take a substitute in a helicopter or a ferry. The group fails to mention one major source of
demand for the industry in tourist routes and also doesn’t speak about the segmentation of the market,
however.
The group assesses the future attractiveness of the industry well. They address the barriers to entry
such as the large entry cost in purchasing a fleet as well as dock space. As well, they talk about potential
predatory pricing that the major players would exercise in order to choke out weak newcomers.
However, while they assess the attractiveness of the Victoria floatplane industry, they don’t address the
rest of the West coasts’. This is a problem because while they state that the major floatplane firms will
continue to see action because of the demand from politicians and businessmen, for smaller markets
their fate might be much grimmer.
Group 7’s Evaluation of Group 8
Group 8, analyzing the coffee shop industry, did a thorough job of dissecting the cost and
demand aspects of this market, and presenting the information in a visually appealing way. In discussing
the initiation and maintenance of a coffee shop, the group went over many types of cost, displaying that
they had researched the industry well and understood the various costs aspects. However, regarding
some costs, the group seemed to elaborate more on the definitions rather than referring to the industry
itself. The cost structure section was well displayed, yet at the end the threats mentioned did not seem
to fit the cost analysis.
When focusing on the demand structure, the group analyzed many different factors, and
identified the main demand drivers, including the market segmentations. The opportunities and threats
were discussed more deeply in this section, and our full understanding of this market was enhanced
with their complete breakdown of the demand drivers. However, they could have further expanded on
why the demand for coffee is so high in the first place.
In their final assessment they strengthened their analysis by adding statistics and providing a
complete overview of the difficulty of competing against the large, well-established, franchised coffee
shops.
Group 8 presented their information very well and explained all the questions included in the
project instructions. After reading, we had a better understanding of the attractiveness of this industry,
yet there were still some questions they did not answer. How much of the industry is ruled by
franchises? Who are the main consumers? To answer specific questions such as these, it may have been
better to focus the analyses on only coffee shops in Victoria. Although they had a bibliography at the
end, they did not include citations throughout their report, and all ideas from other sources should be
properly cited. Overall, Group 8 analyzed their industry well, but perhaps could have researched a few
more details.
Group 1 critique
Group 15 - Nils, Hayden, Tyler, Dave
This paper offered some limited facts about the market that were reinforced by several
reputable sources, but failed to fully explain in detail and depth the large forestry market. Significantly,
they missed the effect of the learning curve, raw log export, total allowable cut with respect to some
firms reducing production, and specialized logging. There was a very brief analysis of the cost structure
surrounding the forestry industry; the bare essential costs were explained. They identified several
demand drivers and gave a good description of how they affect the market. They do a fairly good job of
incorporating their own independent thoughts and analysis throughout the paper in regards of the
logging/forestry industry. They incorporate their own thoughts within each section of the project and
build upon their analysis and thoughts. Their usage of economics learnt in this class is very minimal; the
economic terms they incorporated were economies of scale/scope and the definition of demand theory.
Throughout the rest of the paper there was a lack of applied economics in their analysis and breakdown
of the logging/forestry industry. The conclusions they draw seem to be only loosely consistent with the
facts and theories they present throughout the paper. Their ideas are very scattered throughout and are
hard to link with some of the conclusions they drew. They seem to jump back and forth from the
logging industry to the milling industry and do not stay on topic. From a business perspective the
conclusions drawn here are incomplete and possibly incorrect. They just scratch the surface of the
complexities involved in the logging and forestry industry. This report has a logical structure but is
poorly written. There are many sentence fragments, comma splices, and grammatical errors throughout.
Ideas taken from outside sources are carefully referenced and credited appropriately.
Group 10 Home Construction Indusrty Review
When reading through group 10's project on the home consturction industry it was very
well organized. The introduction broke down the large number of factors that must be
considered, while tying it into the victoria market.
The strengths of report can be seen in all of the sections. For the costs, they are broken
down into many groups highlighting that is important to keep track of labour, building materials,
and land. With the Victotia market it is well detailed how the market has many medium to small
size players. In the demand drivers section of the report, it shows a spot on decription of the
victoria market. Being on an island and having to deal with the fixed amount of space. Also the
unique age groups that excist in the city. It would have been nice to see more of a look into how
the age of the victoria house market is effecting the re-builds. So many houses are become
outdated and far past regualtion needing more than just simple renovations. In the final section
dealing with future profitablility the graphs give a great view of the market and profitablity. Aslo
the forecast statistics help strengthen the conclusion that the market is still on the rise.
Overall the report was very clear and well done. There were a couple instances that the
sentences began the run on. A couple industry points that could have been looked at is the age of
the houses in supply and how the reccesion effected the demand over that past couple years. The
attractivness was well shown with the opportuinities in renovation, consturction, and demolition.
Also adding that Victoria has many attractive amenties to comabt the high prices.
Group Evaluation for Group #4

well organized
-seems well researched

make sure you answered all the professor’s desired questions
-demand drivers and elasticity was well covered as far as the industry and this specific location of the industry
(Victoria)

we liked how compliments and whole price packages were covered
-real world examples and research would have been good for the audience to relate to from an actual company or
industry rather than just talking about what you found
Good job!
Evaluation of Group Project #3
Cost
In the project, it gives an example of entry cost: licenses, and from the example, it is clearly to
see the licenses are substantial costs for the wine industry. They did a quite good job to explain
the reason. Besides, running an orchard needs many other costs and they classified the cost
carefully in this part. In addition, they also pay some attention to the threats to the wine industry.
However, in the part where explains high cost to maintain the business is a good reason for why
there are not many small companies in the industry, they did not give believable evidences to
prove it. Overall, it is a well conducted research.
Demand
They have analyzed some good aspects of demand. For example, consumer decisions, substitutes
and new policy on drinking and driving. However, they did not really talk about how price and
change in demand can affect the Okanagan wine industry. Although they listed the substitutes
from other parts of B.C and around the world, it is unclear why people would choose Okanagan
wine over others. This group has incorporated the new driving and drinking policy that has
reduced the consumption and demand for wine industry. This is a very good point to have
because they have included the latest update on the industry. However, since the drinking and
driving policy is going to affect the “alcoholic drink’s demand,” it is better to focus on the
Okanagan’s wine industry instead of the whole wine industry
Future
This is an excellent research on this industry. It is quite clear and consistent; the larger
amount of date and examples clearly shows every element that will have effects on this industry.
However, the group put too much emphasis on the demand part, and did not give enough proof
on the future attractiveness. In such a competitive market, how will the company deal with the
great challenges? Why the B.C. government has a strong power of controlling the price, and how
will the government policies influence the industry? What is the developing foreground of this
industry? These questions should also be mentioned in the future part, because, to have a brighter
future and earn more money is the most important point for the entire industry.