Here is an interesting and funny video on Externalities in production:
Category Archives: Microeconomics
Fri, Apr 23, 2010
HONG KONG – Cathay Pacific said Friday it had been granted immunity from any fine by British regulators in a price-fixing case with Virgin Atlantic, on condition that it offered full cooperation.
Britain’s Office of Fair Trading (OFT) said Thursday it was investigating whether the Hong Kong-listed airline and Virgin had infringed pricing law over the lucrative London to Hong Kong route.
The OFT said the matter had been brought to its attention by Cathay under the its leniency policy, which says a firm may be given immunity from penalties for being the first to report its participation in possible cartel conduct.
“Cathay Pacific has applied for and been granted immunity from any financial penalty by the OFT in relation to this matter, conditional upon Cathay Pacific’s full cooperation with the investigation,” the airline said in a statement posted to the Hong Kong stock exchange on Friday.
The statement said Cathay “has a policy of full compliance with competition law and will cooperate in full with requirements of any relevant authorities”.
The case concerns a number of alleged contacts between employees of the two airlines over a number of years, a statement issued by the British competition watchdog said.
Sir Richard Branson’s Virgin Atlantic has strongly denied the allegations.
“Virgin Atlantic intends to robustly defend itself against these allegations dating from 2002-2006,” it said in a statement.
“The airline does not believe that it has acted in any way contrary to the interests of consumers.”
It is alleged that the contacts “had the object of coordinating the parties’ respective pricing strategies regarding passenger fares through the exchange of commercially sensitive information on pricing and other commercial matters,” according to the OFT.
Comment: An interesting case of Game Theory “Prisoner’s Dilemma” at work? The first party to report on the price fixing or anti-competitive behaviour gets away with it, while the other party(ies) get punished. If you don’t report, you don’t know if the other party will “play you out”. Seems like an interesting and effective way of breaking up tacit collusion among firms.