Question 1. Temporary oil surcharge
The Ukraine crisis escalated, relations between the United States and Europe on the one hand, and Russia on the other, are at their lowest. All exports between them stopped. This causes in particular a very significant increase in the price of oil, as Russia is one of the world's largest producers and exporters. An extraordinary meeting is held on this subject within the International Airline Association (IAA), which regroups 80% of the world’s airline companies. The meeting takes place in Mexico City and all members are present, including United Airlines, Qantas, Air France, British Airways Emirates, Lufthansa etc. Participants in the meeting immediately start addressing the price of oil, its negative impact on commercial aviation industry, the fact that the market was already performing poorly because of the economic crisis, the fact that airline bankruptcies multiply etc. Quickly, the discussion turns toward practical solutions to address these problems. The representative of United says his company will have no choice but to pass on this extra cost to customers, which will result in the introduction of a new additional price component called "Temporary oil surcharge" (or TOS) on flights from New York to London from the following month onwards. The TOS, the amount of which he does not reveal, constitutes a small proportion (less than 10%) of the total ticket price, which he also refrains from revealing. He asks his colleagues what they intend to do. Several discussions ensue: - The representative of Lufthansa says that his company had already decided a month before that it would introduce of a mechanism similar to the TOS, which will be implemented in the coming days. He sits down and listens to the debates without intervening any further. - The representative of Emirates starts bilateral discussions directly with the United representative, in particular as regards the amount of the TOS. Following this discussion, he and the United representative find a consensus on the amount of the TOS both United Airlines and Emirates will apply. The total ticket price has not been discussed at any time. - The representative of Air France simply states that oil prices will have no impact on ticket prices to the extent that his company considers it its duty to support the economy by absorbing the entire oil shock. He sits down and listens to the debates without intervening any further. - The representative of British Airways refrains from participating in the discussion and remains discreet until the end of the meeting.
Which of these representatives violated Article 101 TFEU/Section 1 Sherman act? Explain why.
Question 2. Tropicana vs. Nestlé
With a market share of about 42%, Tropicana (PepsiCo Group) is the leading orange juice producer in Europe, ahead of Minute Maid (Coca Cola group), which has a market share of 29%. The rest of the market is very fragmented; the few recent entry attempts have been unsuccessful. This is due in particular to the fact that, to successfully enter the market, major promotional campaigns must be organized in each target country (and even in each target city), which is extremely expensive. In practice, only companies backed by large groups manage to reach a critical size allowing them to maintain themselves on the market. Indeed, market shares are relatively stable in this market, and have been for some time. Recently, the large food group Nestlé (which owns the Nestea brand) declared its intention to enter the orange juice market. Indeed, Tropicana (followed in this by Minute Maid) focused its efforts on the premium segment of the market with high prices by emphasizing the quality of its products; Nestlé identifies an opportunity for a cheaper, entry-level product. Nestlé is one of the few companies powerful enough to finance the required advertising campaigns. Nestlé began its campaign by stating that it will sell its orange juice just 1.3 euros per liter (against no less than 3 euros per liter for Tropicana). Feeling threatened by this entry, Tropicana organizes its defense. It wishes in particular to commercialize some of its product under a new brand, at entry-level prices. You are the general counsel of Tropicana and commercial teams submit their plans you: - The new plant where the pulp is mixed with water and packaged in cardboard will cost € 2 million; it will produce 10 million liters; - Orange juice itself will cost Tropicana 1 euro per liter; - In terms of price, sales teams are studying several possibilities: o Make par with Nestlé at 1.3 euros / liter o Beat Nestlé with 1.1 euros / liter - During your discussion with the commercial teams, it appears that their objective is to position Tropicana on the entry-level segment that has been for too long neglected by Tropicana (as this was revealed, quite painfully, by the arrival of Nestlé).
What is your analysis of the plans of Tropicana? Does your analysis change if a member of the commercial team tells you that the management really has no desire to maintain such entry-level prices so that the new line will disappear as soon as Nestlé is driven out of the market?