Course Project Feedback: Managerial Economics 205
Autumn 2011
I really enjoyed reading your projects. Thanks for putting the time and effort. Here are some comments.
I will also paste at the end of this document the group comments that I have received so far.
Tuesday: Discussion of HarbourAir/Helijet pricing policy
To start, you should present a description of the two different services offered by HarbourAir and Helijet
and how they two companies are differentiated. Then you should present a clear and comprehensive
description of pricing policies, distinguishing the different dimensions along which price may vary (age or
demographic status of traveler, quantity discount, corporate deals, time of day/day of week, dynamic
pricing…). Then you should introduce the different consumer segments, how they view the services
offered by the two companies, how the care about the different product dimensions (flexibility, what
are their substitutes), their price elasticity, and willingness to substitute across ticket contracts. Finally,
you may discuss how the various contracts achieve direct and indirect price discrimination and conclude
with thoughts about how to improve the pricing policies. Use of quantitative information describing the
various pricing options was a requirement. You could discuss the cost to consumers of the various
options depending on their use. You could also have discussed is how competition interplays with price
discrimination. Another important piece of information would be to investigate whether the planes are
full and whether companies systematically sell out some departures.
Group 1: Wilson/Sallows/Tustin/Erikson/Bousadda (Grade A)
You demonstrate a good understanding of the pricing issues that are relevant for HarbourAir and Helijet.
You present an excellent description of the pricing policies and make good use of the course concepts to
explain how these policies achieve market segmentation and price discrimination. A weakness in your
analysis is that you do not explain how product differentiation, explains the differences in pricing
policies across consumers segments. You identify the most relevant points regarding price
discrimination but your recommendations are relatively weak and off-topic. Important pieces of
information are buried in your appendix. The price information, for example, should be in the core of
the text. You could also define insider terms such as AirBuck and QuickTicket.
Group2: Evans/Massot/Pynn/Dobravsky/Tremblay (Grade A-)
You wrote a good report. You identify many important points and draw relevant implications. It is
difficult to follow your report because the information on pricing is sprinkled here and there. You could
have organized the information more effectively, starting by summarizing the relevant information
about ticket prices your reader needs to know about pricing to analyze HarbourAir and Helijet pricing
policies. Your discussion of ‘quantity discounts’ given to heavy users could have been further developed.
It is not clear from your report how much Helijet varies prices for the same departure (dynamic pricing).
Group3: Jones/DeCotiis/Gatsi/Devahastin/StLaurent (Grade B+)
You make some good points but your report would greatly benefit from reorganizing the material to
give the report a clear structure that direct the reader toward some conclusions or lessons to be drawn.
The write-up could also be more precise (avoid general statements) making specific references to
HarbourAir and Helijet policies. For example, your introduction is weak because it does not say much
that is specific to your case study and that prepare the reader for the punch lines you want to draw. You
could have made more use of quantitative information on the various pricing options.
Wednesday: Discussion of hotel (boutique or lodging) industry
These three projects study slightly different markets but many of the issues are common. The
discussion of fixed cost is essential. The main fixed costs that are difficult to change even in the
short/medium run are location, building, brand positioning, hotel features and amenities (restaurant,
parking, room size…). A hotel enters the market to offer a given experience to consumers and this will
define its position relative to other hotels. Competition will be weak if hotels are highly differentiated
and if differentiation matters to consumers. Total market size will determine how many hotels the
market can sustain, keeping in mind that the business cycle may generate profitability swings in the
short run. A small market with highly differentiated hotels is a good place to be in. In that sense, you
can say that the barriers to entry are greater for a large resort in Tofino than for hotels that serves a
large international airport. The notion of market size requires a good understanding of the different
consumer segments and demand trends. This will be specific to your market. Another feature of
boutique hotels and resort is that they offer a highly personalized product that is targeted to specific
consumers. Reputation and word of mouth is important and it may take some time before their
demand grows to justify entry. In that sense, it is riskier to build a large resort in Torino than a Sheraton
in a large city.
Group 4: Wang/Gao/Wang/Zhou/Cai/Lv (Grade A)
You wrote a very good report. You nicely use quantitative data with use of economics concepts to draw
insightful conclusions. You identify many important economic forces at play in the Victoria boutique
hotel market. You could have drawn sharper conclusions. Your analysis of cost could have emphasized
the features that mattered for competition. Most of construction costs are not sunk and front desk is
not a fixed cost (many hotels close in low season and have more staff during peak check-in and checkout times). Nice piece of research overall.
Group 5: Britz/Desmarais/Luscombe/Roll/Witschen (Grade A-)
You nicely researched the market for boutique hotels in Victoria. You could have made greater use of
quantitative information and the various points you make could have been organized more effectively.
Try to structure your report along coherent sections that bring the reader to a set of lessons that you
summarize in your conclusion to make your assessment of the attractiveness of the market. Your
analysis of barrier to entry could be improved. You mention different points here and there but I could
not find coherent and convincing statements of what market mechanisms protected players like Oswego
from entry.
Group 6: Hermasson Haight Hughes (Grade A)
Good analysis. You researched the industry and managed to identify some important market forces that
influence the Wickanninish Inn. Your introduction nicely focuses the analysis. You could try to be more
explicit in your discussion of cost (difficult to follow) and give us a rough idea of the relative share
associated with fixed and variable cost. Again, your discussion of demand drivers could have benefited
from further work explaining the various demand segments and the implications for competition in your
market. You could have made a stronger case for barriers to entry in your market.
Friday: Discussion of tablet/e-reader war
Your report should start with a discussion of the various products characteristics of e-book readers
and/or tablets (the and/or depends on whether you argue the two belong or not in the same market).
You should then explain which subset of products you will focus on and this should be motivated as a
legitimate choice. The demand for e-book reader and tablets depend on the installed base for several
reasons. A large install based will increase consumer benefit if there are complementary products
(software applications, media content, books…) associated with the tablets because the greater the
installed base the greater the incentive to produce complementary products; an issue that deserves
elaboration. In addition, the installed base also matters if consumers exchange files and communicate
through the tablets (higher installed base mean more people to communicate with). This discussion
should set the background to explain that companies compete along four key dimensions: price and
product characteristics as for other markets AND installed base and complementary content. Different
firms have chosen to position themselves differently along these dimensions. You may also want to
discuss whether content should be provided in-house (model of Amazon/Google/iPad) or by third party
providers (model of HP/Samsung) or a mix of both. How do you see the market evolve over time?
Convergence to a dominant standard (such as PC with Windows), overlapping generations of competing
standards (video games), or fragmented industry (regular electronic product)?
Group 7: Nikleva/Glover/Grimm/Bally (Grade A)
You nicely researched your industry. You offer a good review of the history of the industry and of the
various products available, as well as relevant price information. You address many of the issues
related to price war, struggle for installed base, and content provision. You also mention the issue of
consumer coordination and hint at the issue of tipping point. Good use of economics to provide
interesting insights regarding what is happening in the industry and various scenarios regarding the
future of the industry.
Group 8: Reiberber/Narang/Purdey/McNicol (Grade B+)
You did a good job at researching the industry and presenting the various products that are competing.
Your report, however, could have made more use of economics. You want to go beyond market facts
and description of firm choices and use economic framework to explain market outcomes. You do that
fairly well in the last 3 paragraphs of your report and you could have done more throughout. Use the
concepts of network externalities and installed base to discuss the strategic choice of price, product
attributes, and content offered, for example.
Group 9: Hamelin/Laidlaw/Mathews (GradeA- )
You make many good points. Your report could benefit from further structure, however. You should
explain in detail in a dedicated section what are the unique economic concepts that are at play in the
market (such as, installed base, complementary products, first mover advantage). You could also
substantiate more some of your points. For example, you argue that Apple’s reputation/advertizing
explain its success with the iPad but do not consider other considerations such as first mover advantage
and complementarily with other Apple products; points that would have to be also substantiated.
Ultimately, you want to understand what explains iPad dominance and whether it is sustainable.
Other Group Presentation
Group 10: Macdonald/Willich/Tan. The BC premium ice cream market. (Grade A)
You did a good job at analyzing the BC premium ice cream market---nice to get access to an insider
contact; well done. You chose to focus on Udder Guy and Haagen-Dazs which is a risky choice because it
covers only a fraction of the players but you fell nicely on your feet because these two companies nicely
summarize the two business models that are relevant in your industry. Your analysis of demand and
cost makes many good points. You could probably have emphasized that a large fraction of HD costs are
marketing (large premium food companies invest about 30-40% in marketing) and UG saves on this
costs because it uses work-of-mouth and local market diffusion instead of pull marketing. You may ask
whether you would expect entry in premium ice cream along different differentiation dimensions (e.g.
coconut bliss ice cream or the segments you mentioned such as frozen yoghurt) and whether this could
crowd out small players like UG. This seems the main threat to companies like UG. Good use of
economics overall and nice presentation as well.
Group 11: Manak/Young/Corry/Binning. Staples (Grade B+)
You have nicely researched your company (Staple) and you present a lot of interesting information.
Your report, however, (and your presentation as well) read more like a company statement you could
read on the Internet rather than an analysis using economics. For example, your analysis of Staple
misses some important features that are common to the ‘category killer’ retailer business model
adopted by Staple. Your analysis of cost is incomplete and misses some important points. Your
discussion of fixed cost should distinguish company fixed costs and store level fixed cost. Regarding
company fixed cost, the main fixed costs of Staples are things like investments in marketing, advertizing,
brand building, distribution and inventory systems, store furnishing and features that are common to all
stores. The good inventory at each store is not a fixed cost. Your discussion of competition is also
weak. If Staple is close to a monopolist why it does has to compete on price (keep low prices and match
competitor prices)? Which companies prevent Staples from setting price? There is a missing part of the
puzzle here.
Group 12: Russell/VanSittert/Keresztes/Said Air Canada Flight’s Pass (Grade A-)
Your main points came across more clearly during your presentation than in your report. You answered
well questions and you should be praised for that. Your report could have done a better job at
explaining what the Flight passes are, how they work, why they are unique, and how the complement
other pricing options of AC. You could have presented a specific example using numerical values to
show why a consumer may switch to the flight pass and why AC may benefit from the switch. This
would help us understand how much market expansion we should expect from the passes and what the
risks of cannibalization are. Your report could have highlighted the ‘small print’ to the flight passes that
may contain cannibalization. To recap, try to structure your report along a few key ideas that
summarize what the flight passes may add to AC and try to demonstrate your points with more formal
arguments. I enjoyed reading your report.
Group 13: Justesen and Amos Canadian Breweries (Grade A-)
I should praise you for researching your industry. You have collected a large amount of information and
you make good use of quantitative data. Some people may debate your claim that mass market
breweries and micro breweries are in the same market and argue that they are better understood as
being substitutes. I would say that ‘generic’ low costs breweries are a closer competitor to Labatt and
Molson than a local beer. The material in your report is not always organized in the clearest way and
you do not always leave the reader with crisp take-aways. Your analysis of the cost structure, for
example, could benefit from further work emphasizing marketing/advertizing/distribution costs for
national brands. I am not sure I agree with your conclusion that the 2 dominant players will remain
profitable. This will depend on beer consumption trends (I would expect there is a negative trend in
alcohol consumption that will probably continue for a while) and on the threat imposed by low cost beer
on one end and premium beer on the other. Good job.
Group 14: Reynaud/Goddard/Colantino/Thomas ICBC Pricing Policies
You focus on a company that is unique for two reasons. ICBC has to tackle a difficult problem which is
the one of how to price risk. In addition, car insurance markets are competitive in most countries but
British Columbia has set a provincial monopoly. You present a good summary of ICBC pricing policies
and do a reasonable attempt at trying to explain them. Your report could have spent more time
explaining the problems associated with pricing risk (asymmetric information and heterogeneity in risk
classes). Your report tends to bend together and confuse the notions of pricing risk and price
discrimination. Your report is difficult to follow. You could have organized your points in a more
effective way, for example, presenting first the company and its policies, then explaining the problem of
pricing risk and finally discussing the issue of price discrimination. Still you make fairly good use of
economics.
Group 15: Kathuria/Cantelon/Peris/Golding Victoria Regional Transit System (Grade A)
You did a good job at researching the pricing policies of Victoria Regional Transit System. Figure 1 is
useful. You could have discussed in more details the consumer choice over alternative modes of
transport and consumer preferences over various dimensions of public transport (frequency,
predictability, density, comfort…). Another issue that is central to your topic is the argument for
government subsidy of public transportation (regulation topic). Understanding the conflicting objective
of an organization such as a transit system is fundamental to understand the complex trade-offs (price
discrimination and efficiency and those of fairness and public service mission) it faces in setting up
pricing. Overall, you did a good job navigating between these various issues.
Evaluation of Group 2
Although Group Two did a very good job analyzing Harbor Air and Helijet I feel like they could have
improved on a few aspects of their project. For instance, Harbor Air does not actually have a discounted
stand-by rate for adults. Group Two leaned on this aspect of Harbor Air pricing in many different
portions of their project and because it is false it leaves gaps in their claims. Another point to consider is
that Harbor Air actually offers many discounted flights when booking through their website. The
majority of the discounted flights are at off-peak periods. I would take this as an indication that they are
segmenting based on peak/off-peak but in a more discreet manner and less effectively than Helijet.
Another section that they could have covered was the lack of price differentiation for Helijet between
different routes. Every route has the same rates. This could cause people to frequent a specific route
more heavily based on the fact that prices are uniform. If they were to charge more on the busier
routes, it may cause the more elastic demand to shift to the less popular routes. A good thing that the
group did was talk about the improvements through peak pricing of Harbour Air. This seems like a good
idea and is relevant to revenue maximization. I feel as if, by being a tourist themed service, that Helijet
should not offer bulk tickets as described by Group 2, as it is not as useful as for Harbour Air (focuses on
business and ordinary fliers (ie. not tourists)). Finally, I feel like the group passed over the importance of
the Airbucks and Quick Tickets as a very distinct form of price differentiation. Despite missing out on a
few features, I do feel like Group Two put together a great project.
Evaluation of: Industry Analysis of Canadian Breweries//// Evaluated by: Kevin, Armando, Garret and
Rob.
After reading this article it made us thirsty for beer! The analysis of Canadian Breweries succeeded
using economics to talk about the market for beer and what goes into making beer. It was interesting to
read about what actually goes into making beer and this group did a great job going into depth with the
costs associated with beer. Its strengths were definitely the depth of information, from fixed and
variable costs, to random things, like the increase in barley prices. Another strength was the talk about
advertising, partly because advertising is a big portion of where companies get they’re customers from.
Many beer commercials around the world are famous and it is important for companies to create
successful advertising that people will talk about. Reading about microbreweries interested us, we were
curious about how much it would cost each year to run a micro brewery, on top of the fixed cost of
$85,000. We are no strangers to beer and enjoy a good seasonal beer around Christmas time, so we
were impressed that this group spoke about seasonal beers and their success. This groups presentation
was also well done, they tied a little humor in with the presentation, which we enjoyed. They did not
have many weaknesses associated with this analysis. My only criticism would be that they could have
looked into Labatt and Molson further and found the revenues for both companies just to see how
powerful they are. It is always interesting to learn about products we regularly consume and I feel this
group did a very good job on their project and the information along with it.
Price War of E-Book Readers Dylan Haight
The group reviewing the price wars of e-book readers did a thorough job of giving us a view of the full ebook market. They described what the original readers entailed in functionality and price. They then
gave a quick overview of how the category progressed and changed up until now. They then proceeded
to describe how three major players dominate the category and how they segment the market they
target. The essay gives us a good look at how prices are determined and how over the years the e-book
reader market has grown while the mark up of the individual e-readers has diminished. I thought that
the most well done section of this essay was about how each of the readers tries to distinguish itself
while trying to drive prices lower. This gave me an idea of how the price of the readers has diminished
so much over the past few years. Before this essay I believed that prices were being driven down largely
because of increases in technology when in reality it was a necessity to compete with the other
companies. I would have likes to see the group give more of an analysis on why the companies may have
started engaging in the price war instead of keeping relatively higher prices among all the companies
and making more profit per unit. I would also have enjoyed reading about what the future of the ereader market might be and how it would affect the number of players in the market. Overall I enjoyed
readying this essay and found myself with more knowledge about the e-reader market.
Evaluation of group one’s report Evaluation done by: Group 15
Group #1 did a comparison and analysis on the pricing policy of Harbour Air and Helijet. Overall, the
report was very thorough and informative. One strength of their comparison was the details about the
different segments in the market for both companies. Through their extensive research, it was clear that
they took the time to dig into both companies, giving a descriptive study. Another strength was they
incorporated numerous economic concepts and tied them all together well (including uniform pricing,
discounting, marginal cost, sunk costs, elasticity, etc), which showed they knew the strength in their
material as well.
There were a couple areas which we would suggest going into more detail, which would help the reader
understand the market a little bit more. The report was very descriptive which worked well, but by
putting more direct examples of pricing in, it would have helped the reader have a stronger grasp on the
many factors in the market. For example, by discussing the operating costs it would have shown why the
pricing policy was set up in such a manner. Another method which they could have helped make their
comparison a bit stronger, would have been to look at it with a more analytical view, and less
descriptive, which would further point out the market concepts.
In conclusion, group one did an excellent job in introducing the market for these two firms. They
showed in detail, the strengths and weaknesses of the market. It would have been interesting to see the
group’s take on if one company was to raise prices, what they thought on how it would have affected
the other company. Overall, group one did a strong report and did a good job of incorporating
economics into it.
Evaluation of BC Premium Ice Cream
The ice cream project offered a very unique perspective to the industry itself. The team offered a very
complete write up that included a very detailed analysis of the ice cram industry in Victoria, targeting
the bigger players, without undermining the niche markets.
We personally learned a lot from this presentation as it offered an in depth analysis of niche markets,
which were quite obscure to us before, and the team even went further by meeting with a production
manager to get a first person account of the industry. The presentation itself was quite good, using
slides and images that provided an insightful view on the Ice cream industry. The write up was excellent,
providing an interesting view on bigger players, explaining their role in price setting. They also explained
how local businesses target niche markets that have to compete with the larger palyers, such as Ben and
Jerry’s and others.
Overall we learned a lot from this project; our general understanding of the Ice Cream industry
broadened our perspective on how bigger players can affect niche markets. Moreover, the Project
perfectly displayed the importance of price setting and competition. The project covered important
topics that were discussed in class, which was a vital part of the assignment.
Group 8 Analysis completed by Group 7
The case studied by group 8 is presented in a manner that is accessible to an unqualified reader while
containing details relevant to the economic analysis of tablets. We felt that the portions on consumer
preferences and market segmentation were the strongest as preferences were supported with market
studies and HP’s product line was analyzed well to determine indirect pricing strategies. The case could
have been improved in a few definite ways. The use of economic terms could have been integrated
more fully into the report and may have even been presented better with subheadings referring to what
economic term was being studied. The extensive analysis of product information would have been more
significant if economic relationship had been provided. For example, the significance of the Samsung
Galaxy Tab operating on the Android system and being the first competitor to offer front and rear facing
cameras to consumers. We question what could be seen as the benefits of the Android system, and how
does it affect consumer decision when deciding which product to purchase. Also are there new and
exciting features that may have a chance to steal consumers in the future? If description is not
extensive, in an economic sense, the reader will lack proper interpretation and consumer preference
may be misguided. Additionally, providing more evidence of the market dominance sustained by apple
should be provided. Claims such as this need ample evidence and sources are easily acquired for these
claims. As discussion is centered on Apple who is the majority of the market, it would have been
interesting to also hear how the smaller companies are trying to gain market share or how economies of
scope has been utilized.
Evaluation for Group 12 (Air Canada’s Flight Pass):
This group did a good job at providing a background of Air Canada’s ticket pricing policy. This is
particularly helpful for readers that are unfamiliar with Air Canada’s pricing policy. The key economic
concepts were identified (ie, price discrimination) and were explained clearly. The group made it clear
when and whom Air Canada uses price discrimination (both indirect and direct).
We liked how this project also discussed how customers react to the pricing policy. From the report, it
seems that some customers actually appreciate the different types of tickets available and feel that Air
Canada is tailoring the tickets to their needs. Providing ways how Air Canada could increase profits by
using indirect price discrimination in a different way was clever (we’re sure Air Canada would be
delighted to read this report!). A very brief background on what kind of data Air Canada uses to decide
what type of price discrimination to use would have enhanced the project. Overall, this group had a very
detailed explanation of how Air Canada uses price discrimination. The presentation in class was
delivered well.