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THIS WEEK'S ARTICLES
Tyson Enters Bidding for Hillshire Brands With $6.1 Billion Offer
Ticket to Dine: The Restaurant Reservation Revolution
Information Age. The Antitrust Book Boomerang
AT&T Subscriber Count Up as Carrier Trades Pricing for Growth
New Push to Make Paying Full Price for a Hotel Passť

Weekly Quiz Questions
Discipline-specific multiple-choice questions to help gauge your students' comprehension of Wall Street Journal content.

Tyson Enters Bidding for Hillshire Brands With $6.1 Billion Offer
by: Jacob Bunge and Dana Mattioli
May 30, 2014
Click here to view the full article on WSJ.com

TOPICS: Antitrust, Mergers

SUMMARY: Setting up a battle between meatpacking heavyweights, Tyson Foods made a competing $6.1 billion bid to buy Hillshire Brands, the maker of Jimmy Dean sausage and Ballpark hot dogs. The article raises three interesting economics points. First, the shift in consumer preferences toward protein and away from carbohydrates is a factor in the recent mergers in the food industry. Second, the increased market power of grocers like Wal-Mart and Kroger is also a factor in recent food industry consolidations. Third, the article raises antitrust issues. "Concerns about consolidation have triggered antitrust issues in other prospective meat deals. In 2009, JBS canceled its plan to acquire National Beef Packing Co. after the Justice Department challenged the deal, arguing the takeover would result in lower prices paid to cattle suppliers and higher beef prices for consumers." But, as the article points out Tyson and Hillshire have complementary brands.

CLASSROOM APPLICATION: Students can evaluate the causes, consequences, and antitrust issues of the proposed acquisition.

QUESTIONS: 
1. (Introductory) What is the motivation of Tyson Foods in acquiring Hillshire Brands?

2. (Advanced) What factors have caused the recent consolidation in the food industry?

3. (Introductory) What would be the effect of consolidation in meatpacking on the prices paid to cattle, pig, and chicken suppliers?

4. (Advanced) Are mergers involving firms selling complementary products more likely to pass antitrust approval than mergers involving firms selling substitute products?

Reviewed By: James Dearden, Lehigh University


Ticket to Dine: The Restaurant Reservation Revolution
by: Jay Cheshes
May 31, 2014
Click here to view the full article on WSJ.com

TOPICS: Pricing

SUMMARY: At places like Next in Chicago, Trois Mec in Los Angeles and Volver in Philadelphia, a new breed of pay-up-front reservation is taking some of the risk out of running a restaurant. But what does it mean for the rest of us?

CLASSROOM APPLICATION: The article offers three interesting issues about pay-up-front restaurant pricing. First, charging restaurant goers at the time reservations are made reduces or eliminates no-shows. With two reasons for no-shows : emergencies and changes of plans : the new pricing shifts of the risk of emergencies from restaurants to restaurant goers while reducing or eliminating the moral hazard problem of changes in plans. Second, some restaurants are practicing menu pricing (i.e., second-degree price discrimination) by charging less for tickets during off-peak times. Third, the up-front pricing opens the opportunity for scalping.

QUESTIONS: 
1. (Advanced) What is second-degree price discrimination? In offering early-bird specials, are restaurants practicing second-degree price discrimination?

2. (Introductory) Has the advanced selling of restaurant tickets and upfront fees to reserve tables shifted the no-show risk of dining out from patrons to restaurants? Has this change affected the frequency of no-shows?

3. (Advanced) With up-front charges for restaurant reservations, is that an opportunity for scalping? How could restaurants reduce the amount of scalping?

Reviewed By: James Dearden, Lehigh University


Information Age. The Antitrust Book Boomerang
by: L. Gordon Crovitz
Jun 02, 2014
Click here to view the full article on WSJ.com

TOPICS: Antitrust, Pricing

SUMMARY: A federal judge unwisely stepped in on Amazon's side, and now we're seeing the results. The week's Information Age column is about the antitrust issues concerning Apple's "agency model" of pricing e-books. The Justice Department went back to the three publishers it sued over Amazon pricing two years ago, asking about any recent pricing discussions they may have had.

CLASSROOM APPLICATION: One issue is whether handing retail pricing decisions to publisher, by eliminating competition among retailers, results in higher prices. It certainly eliminates Amazon's strategy of using e-books as loss leaders to boost sales of its profitable Kindles and Amazon Prime subscriptions.

QUESTIONS: 
1. (Introductory) Why has Amazon delayed shipments of book publisher Hachette books and blocked preorders of new titles?

2. (Introductory) What are the "agency model" and "wholesale model" of setting retail book prices?

3. (Advanced) Does the agency model eliminate competition among book retailers?

4. (Advanced) Under what conditions could the wholesale model result in book retailers exiting the market? Discuss online book sales and Amazon's incentive to sell books a loss leaders.

Reviewed By: James Dearden, Lehigh University

RELATED ARTICLES: 
U.S. Goes Back to Publishers on Prices
by Jeffrey A. Trachtenberg
Jun 03, 2014
Page: B1


AT&T Subscriber Count Up as Carrier Trades Pricing for Growth
by: Thomas Gryta
Jun 04, 2014
Click here to view the full article on WSJ.com

TOPICS: Pricing

SUMMARY: AT&T is pulling in more wireless customers, but half of its users of phones such as the iPhone are on discounted plans.

CLASSROOM APPLICATION: The article is a good case for students to understand that the demand curves for firms slope downwards. For AT&T to increase sales, the company offered more discounts. The issue is whether or not doing so increases profits. The article also touches on issues of whether AT&T price discriminates between existing and new customers and the competition among wireless providers.

QUESTIONS: 
1. (Advanced) For a firm with market power (i.e., the firm faces a downward sloping demand curve), graph the relationship between price and total revenue. Describe the circumstances under which lowering the price leads to greater revenues, and describe the circumstances under which raising price leads to greater revenues.

2. (Introductory) Why is AT&T offering discounts?

3. (Advanced) The article states: "The concern on Wall Street is that AT&T is adding customers now at the expense of cutting its service pricing across all of its postpaid customers." Is AT&T practicing price discrimination? If not, why? Perhaps the answer lies in this statement, "AT&T's pricing moves follow aggressive efforts by T-Mobile US Inc. to take customers by paying early termination fees and dropping charges like international data roaming fees that had annoyed users."

Reviewed By: James Dearden, Lehigh University


New Push to Make Paying Full Price for a Hotel Passť
by: Craig Karmin
Jun 05, 2014
Click here to view the full article on WSJ.com

TOPICS: Pricing

SUMMARY: A fresh crop of technology startups is offering new ways for travelers to book rooms at significant discounts to prices listed on hotel websites or on online travel agencies such as Expedia.com.

CLASSROOM APPLICATION: Instructors can use the article to stress that the effect of information, or lack thereof, about prices and supply and demand conditions offered by sellers on equilibrium prices. In this case, by reducing the cost to travelers of acquiring information about hotel prices and also supply and demand conditions, travelers can negotiate better hotel prices. One issue is whether this more-precise information about supply and demand conditions will reduce the market power of hotels. "Stayful's technology aims to determine whether a hotel room's price is higher than the market suggests it should be. The data-crunching process considers variables such as the current supply and historic demand for a property, the season, the day of the week and the prices being offered by the hotel's direct competitors." One interesting point is that travelers pay a cost of using the new crop hotel booking sites. "For some travelers, these new companies won't hold much appeal. Their main attraction is that they ferret out the best price, often at the expense of convenience, flexibility or the ability to collect points for future upgrades and free stays. Some of the big hotel brands, including Hilton Worldwide Holdings Inc. and Marriott International Inc., tend not to allow guests to accumulate loyalty-program points if they book through third parties offering discounts."

QUESTIONS: 
1. (Introductory) Describe the mechanisms used by the new crop of hotel booking and price-negotiation sites used to find or negotiate lower prices for travelers.

2. (Advanced) What are the benefits to travelers of using the new crop of hotel booking and price-negotiation sites? What are the costs? Which types of travelers (i.e., business or leisure) would tend to use the sites?

3. (Advanced) In negotiations between a travelers and a hotel about its price, how can the traveler benefit from information not only about the prices of competing hotels but also about the supply and demand conditions of the hotel's local market?

Reviewed By: James Dearden, Lehigh University


Weekly Quiz Questions

ECONOMICS MICRO for the week of 06/05/2014



Tyson Enters Bidding for Hillshire Brands With $6.1 Billion Offer
by Jacob Bunge and Dana Mattioli
05-30-14
Click here to view the full article on WSJ.com


1. The Wall Street Journal reports that in the food industry supply chain much of the pricing power has shifted to
(a) big retailers.
(b) big meatpackers.
(c) organic food suppliers.
(d) organic retailers.
(e) consumers.

2. Meat producers' profitability has climbed as
(a) federal regulators have imposed price ceilings on beef, pork, and chicken.
(b) these processors have implemented McDonald's slaughterhouse efficiencies.
(c) they have experienced significant scale economies.
(d) supplies of beef, pork, and chicken have shrunk and the cost to feed animals has fallen.
(e) supplies of beef, pork, and chicken have increased and the cost to feed animals has risen.



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