Air Canada and the Competition Bureau Air Canada and United have for many years been members of the Star Alliance, selling seats on each others flights while competing for passengers. In 2011 they...

Air Canada and the Competition Bureau
Air Canada and United have for many years been members of the Star Alliance, selling seats on each others flights while competing for passengers. In 2011 they proposed a closer collaboration involving exchanging information about sales and fares and coordinating schedules on 19 Canada-US routes. The Canadian Competition Bureau blocked the deal on the grounds that it was uncompetitive. Air Canada objected to the Competition Bureau's decision and the case went before the Competition Tribunal for a decision. Since this was an unusual case, it was tough to predict the outcome and some lawyers put it at 50150. Suppose that the following table represents the increase in profits to Air Canada under "good" or "bad" economic conditions which have probabilities of 0.3 and 0.7 respectively. Economic Conditions Good Bad Tribunal Outcome Win +240m+$210m Loose +$150m -S500m
(a) What is the expected increase in profits to Air Canada? (b) What is the variance of the increase in profits to Air Canada? (c) How do your answers to (a) and (b) compare to just accepting the Competition Bureau's decision (i.e. the "loose" scenario in the table above)? (d) Is it worth Air Canada spending an $32m on lawyers fees to fight the case?


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