Scenarios Events for The Airline Game.

Several scenarios are available. Here are some of the events that may appear (on demand) during a session of The Airline Game:

Demand booms and crisis

Unexpected demand booms and crisis starting at the beginning of a year (after the flight choice).

Theoretic comments (or lectures) that may accompany this event:

Demand shocks.
Interest of price discrimination. Demand price elasticity.
Impact of marginal cost/fixed costs on price.
Short run cost/long run cost.
Yield Management.
Peak-load pricing (the model is callibrated so that players do not use all their planes during off-peak periods).
Monopoly/duopoly.
Effect of flights frequency on demand. Differentiation and circular city model.
Business travelers/Leisure travelers.
Cournot / price competition - quantity precommitment (advanced).
Impact of capacity constraints on competition intensity.

Air transport liberalization

Routes over which only a few airlines could previously operate are opened to every airline (implying multiplication of hub costs).

Theoretic comments (or lectures) that may accompany this event:

Impact of the number of firms on competition intensity.
Indirect impact of avoidable fixed costs on the price via the number of active firms.
Barriers to entry.
Predation.
Reputation building.
Why it’s only interesting to settle on an additional hub if you anticipate enough activity.
Lobbying and entry costs.

Congested airports and the grandfather rule

Some airports become congested. Before planning a flight, it becomes necessary to get a landing and a take-off slot on these airports (slot allocation is based on asymmetric historical rights and administrative allocation).

Theoretic comments (or lectures) that may accompany this event:

The grand-father rule.
Baby-sitting for later and adverse effects (We have chosen the number of slots so that the introduction of limited airport slots actually increases the number of flights -> more flights with smaller planes)
Using capacity so that competitors cannot use it (same consequence as baby-sitting).

Avoidable Fixed Cost Increase

To try to reduce congestion, a new avoidable fixed cost/tax is created on each route over which an airline operates

Theoretic comments (or lectures) that may accompany this event:

Impact of sunk cost on price.
Indirect impact of avoidable fixed costs on price via the number of active firms.

Setting up a posted price for the airport slots

A posted price for airport slots is set up.

Theoretic comments (or lectures) that may accompany this event:

Compare impacts of different types of costs on price.
Baby-sitting and costs (Some airports should not be congested anymore and larger planes should be used).
Peak-load pricing and capacity costs.

Auctions for airport slots

The posted price for airport slots is removed. Slots which were not fully used the previous year are now sold through auctions.

Theoretic comments (or lectures) that may accompany this event:

Auction theory. Simultaneous/sequential auctions.
Auctions and concentration: Why slots on an airport are more valuable to the airline who already has the more slots.
Maximum number of reallocated slots as a barrier to entry.
Baby-sitting.

Relaxing the capacity constraint with a new aircraft

A larger aircraft becomes available.

Theoretic comments (or lectures) that may accompany this event:

Capacity constraints, competition intensity and rents.
Prisoner’s dilemma (everyone finds an interest in using the larger aircraft, event though it can have a negative impact on the profits by fostering competition).

CO2 taxes

Taxes based on CO2 emissions are introduced in the game. Variant: they are replaced by a subsidy for pollution reduction.

Theoretic comments (or lectures) that may accompany this event:

Externalities.
Costs shocks.
Equivalent effect of tax/subsidy as a solution to externalities.

EU-ETS, Introduction of tradable CO2 emission permits

CO2 taxes/subsidies are removed and tradable CO2 emissions permits are introduced. In particular, the scenario studies the impact of the initial allocation method and of the permits price on fleet choice, ticket prices and airlines' profits.

Theoretic comments (or lectures) that may accompany this event:

Externalities.
Impact of the initial allocation of the permits: grandfathering, benchmarking and/or auctioning.
Windfall profits and opportunity costs.
Banking.
Capacity constraints, competition intensity and rents.
Auction theory. Simultaneous/sequential auctions.

Mergers, Takeovers and Bankruptcy

At some point in the game, mergers and takeovers become possible. Either through an (score sharing) agreement between firms or through an hostile takeover. At the end of the game, airlines can also go bankrupt.

Theoretic comments (or lectures) that may accompany this event:

Mergers and Takeovers.
Motivations for mergers.
Impact of mergers on Welfare.
Merger control, divestitures, ...
Bankruptcy and price wars.
...

Collusion investigations

At the beginning of the game, settings are calibrated to enable comparing monopoly and oligopoly profits. Later in the game, if some players set up a cartel, factors progressively make collusion harder to sustain. At some point, if some predefinite criteria are verified, collusion investigations are launched which may ultimately lead to trials.

Theoretic comments (or lectures) that may accompany this event:

The logic behind competition and collusion.
Facilitating conditions and how to fight collusion.
Leniency programs.
...

Bargaining with manufacturers

The trainer or some of the players are now acting as aircraft manufacturers, and bargain with the airlines at the beginning of the year.

Theoretic comments (or lectures) that may accompany this event:

Bargaining.
Maintenance costs.
Lock-ins and switching costs.
...