Valujet update
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ValuJet update. May 11, 1996: ValuJet flight from Miami to Atlanta crashes in Everglades, killing 110 caused by illegally loaded oxygen generators Investigation reveals long list of previous safety incidents; ValuJet loses its carrier certificate

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ValuJet update

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Valujet update

ValuJet update

  • May 11, 1996: ValuJet flight from Miami to Atlanta crashes in Everglades, killing 110

    • caused by illegally loaded oxygen generators

  • Investigation reveals long list of previous safety incidents; ValuJet loses its carrier certificate

  • September 1997: Merger of ValuJet with AirTran Airlines, operate under AirTran name. Some changes:

    • Business class introduced

    • Reserved seats

    • New planes: Boeing 717, the original MD-95 mentioned in case

  • Meanwhile, Delta introduced Delta Express to serve vacation markets


Valujet takeaways judo strategy

ValuJet takeaways:Judo strategy

  • Two possible models to apply:

    • Vertical product differentiation: cost vs. benefit strategy

    • “Judo economics”

  • How do you enter an untapped market segment without provoking competitors to respond aggressively?

    • By restricting capacity

    • By making it unattractive for rival’s customers to switch

      • Lower benefit actually supports ValuJet’s differentiation strategy


Valujet takeaways judo strategy cont d

ValuJet takeaways:Judo strategy (cont’d)

  • Why couldn’t Delta achieve the same as monopolist, through price discrimination?

    • Indirect (2nd degree) price discrimination not effective enough to prevent cannibalization

    • Also requires quality differentiation and different set of operations to keep costs low


Valujet takeaways strategic effects

ValuJet takeaways:Strategic effects

  • We’ve talked a lot about positioning and fit, cost & benefit drivers

  • Here, focus a bit more on strategic effects: how do strategic commitments affect rival’s response?

    • Price competition = strategic complements

      • Direct and strategic effects on profits often go in opposite directions

    • Lowering MC is tough commitment: negative strategic effect

    • Lowering benefit is soft commitment: positive strategic effect


Valujet takeaways incumbent s response to entry

ValuJet takeaways: Incumbent’s response to entry

  • Distinguish best response under accommodated entry from predatory pricing

  • Success of either depends on

    • Ability to price-discriminate

    • Capacity constraints

    • Size of market at the lower end

  • Is there a bigger game?

    • What effect does outcome have on entry in other markets?

    • Is the entrant really committed to remaining small?


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