ECON 5315 - Suppose two firms, Southwest Airlines

ADAPTED Homework, Chapter 9

(10 points possible, 2 points each)

1. Suppose two firms, Southwest Airlines and United Airlines, are competing in the commercial airline market in which downstream buyer preferences are identical. Suppose United Airlines charges some positive price for a major corporation to sign an agreement for discounted fares for its employees and Southwest Airlines doesn’t.

a. Is airline travel a search good or an experience good? Explain.

b. Which firm is likely to provide the greatest value created? Explain.

2. Analysts sometimes suggest that firms should outsource low value-added activities. Under what conditions do you agree? Explain.

5. a. Why would the role of the marketing department in capital-intensive industries (e.g., aluminum) differ from that in labor-intensive industries (e.g., commercial airlines)?

b. How does this relate to positioning?

7. Identify oneexperience good that you purchased recently. Identify onesearch good you purchased recently that was made in an industry that is NOT capital intensive.

a. Explain how the retailing of that experience good differs from the retailing of that search good.

b. How do these differences help consumers?