For your intro classes, from the WSJ Weekly Review (Lobster glut slams prices):
TOPICS: Antitrust, Cost Analysis
SUMMARY: Lobster prices in Maine have hit a 30-year low for this time of year, prompting some lobstermen to tie up their boats at port. The reason: The warm winter has led to an oversupply of the crustaceans. The article offers two interesting points about operation decisions and lobster prices. First, current lobster prices may be below the shut-down price. "I'm looking at all their boats as we speak," he said Friday when reached at the co-op, which sits across the bay from Bar Harbor "They all have a cut-off point [in price] where they can and can't fish," he said. "It's an impossible situation." Second, an alternative explanation for the decision by lobstermen not to fish: collusion. "Frankly, there were some fisherman that were trying to bully some people into not fishing. Most of it was veiled threats, and as soon as we started hearing about it, I made sure patrol was aware," said Mr. Keliher. On Monday, Mr. Keliher issued a statement warning that threats to cut lobster traps loose or force lobstermen to stay in port "will be met with targeted and swift enforcement." He added that any attempts to impose a broader fishing halt "may be in violation of federal antitrust laws."
CLASSROOM APPLICATION: The article fits well in three topics: the analysis of shut-down prices for competitive firms; supply and demand explanations of low lobster prices; and the analysis of collusion in the Cournot model.
QUESTIONS:
1. (Introductory) What factors have caused this summer's low lobster prices?
2. (Advanced) What is the "shut-down price"? Have lobster prices dropped below this price?
3. (Advanced) Are lobstermen colluding in their decisions not to fish? If so, what techniques are lobstermen using to enforce the collusion?Reviewed By: James Dearden, Lehigh University
