The Handbook for Economics Lecturers

2.3 Using the newspaper in seminars

Lectures are usually complemented by seminars or tutorials that take place the week after the lecture. This subsection assumes that students are given a set of problems and tasks to prepare beforehand and suggests how seminar activities could be structured.

First, ask the students to solve simple abstract numerical problems whose solution requires the application of basic knowledge (i.e. formulae, expressions, etc.) acquired during the lecture and through the reading of the assigned material. It is helpful in this case to design your own problems rather than to use problems taken from textbooks (an example is provided at the end of this subsection). In this way you have better control of the gradual development of cognitive skills in students.

These problems could then be followed by a set of more complex problems in which students have to show an ability to analyse a specific economic situation or business decision and to produce a solution. These problems are specifically aimed at developing analytical skills, requiring students to break down information into simple components, establish links and produce a solution. In many cases it is possible to combine application and analysis in one single problem. A very simple example could be a problem that gives information about the fixed and variable costs of production of two alternative technologies and the output the firm expects to produce. The students can then be asked to set up the total and average cost functions. This task would require an ability to apply knowledge. The problem can then continue by asking which technology the firm should employ in production. This task requires students to use the results computed in the earlier parts of the problem to produce a solution by suggesting the most efficient technology.

The seminar could conclude with the investigation of a case study. It is suggested that you use a case studies newsclip drawn from leading business newspapers and magazine. The newsclip can be longer than that used in the lecture, even if brief and compact articles should be preferred. Long articles (usually more than 500 words long) can contain too much information that can make the students’ analysis difficult and put them off the case. Moreover, time constraints often make it unfeasible to deal with long and complex cases. The investigation of the case study aims to complete the educational taxonomy by inducing students to engage in the synthesis and evaluation of more complex information. Each case study should be accompanied by a set of questions that help students focus their attention on the issues that are relevant to the topic under discussion. It is important to include these questions because, particularly in the early stages of the module, students do not have a clear ability to distinguish important from peripheral information. By attending the lecture and experiencing the approach to case study analysis in the classroom, students should develop some understanding of how to deal with the article. However, in many cases their approach will still be rough and lack the necessary focus.

Top Tip: Complement the newspaper article with questions that help students approach the analysis in a structured and coherent manner.

With appropriate guidance and direction, the case study helps students to develop an ability to break down complex information into simple components: analysis is fostered. These simple components can then be linked together and cross-referenced to interpret the actions of economic agents and the strategies of businesses: synthesis is stimulated. This new information is then used critically to evaluate the business strategy against alternative strategies or some set objective: evaluation is triggered.

In the early part of the module, the students will find it difficult to approach case study discussion in a structured and rational way. Your role is to coach the discussion and guide the student through a logical and informative investigation. As students develop a better understanding of how to approach case study analysis, your role in the discussion will reduce and you will be required to intervene much less frequently. In later stages of the module, you can start supplying case studies that are not complemented by any question so that students have to show their analytical skills without the guidance of pre-set boundaries. Indeed, the students’ ability to engage in the case analysis without the ‘guidelines’ provided by the questions will reveal their actual development of higher-order skills.

Students’ preparation is important but not necessary. It is important and desirable because it will generate a speedy and livelier discussion of the case. It is not necessary because the length of the case usually allows a quick reading of the article and an almost immediate ability to engage in the discussion. At the end of each seminar, you can distribute additional case studies for students to analyse and provide a short written report. This would allow students to practise and to strengthen their skills. As discussed below, this additional activity could be managed with the help of a Virtual Learning Environment.

Students engage in each element of Bloom’s taxonomy through the range of activities in the case study. The development of the lower skills of knowledge, comprehension and application that started with the lecture is then complemented by the seminar activities that are specifically designed to push the students towards the higher skills of analysis, synthesis and application. This structured approach to learning, with the case study method at its centre, can be an effective method for developing higher-order skills in students. An example of case studies in seminar activities is given below. The assessment is the final part of the learning process. The next subsection explains how case studies can be used in various assessment methods to test the students’ cognitive skills.

Example: structuring seminar activities

The seminar activities that complement the hold-up lecture, discussed in the previous example, include first a numerical problem aimed at developing comprehension and application and at stimulating analysis. The problem in Figure 2 has been used in the past.

You are the owner of Engines Ltd, a company that specialises in the production of engines for motorbikes. You are approached by the managers of Aprilia, who are planning to produce a new motorbike that meets new higher government environment standards. They require you to produce a new engine whose emissions must be below the limits imposed by recently introduced anti-pollution legislation. After many discussions and project analysis, you work out that the production of the new engine will require an investment of I = £4 000 000 and that the average variable cost of production will be C = £200. After discussion with the Aprilia managers you agree to supply Q = 50 000 engines at a price of P*=£400 each. The managers of Engines Ltd know that by signing the contract with Aprilia they commit themselves to the production of a highly specialised product that they will only be able to sell to other motorbike manufacturers at a lower price of Pm = £250. Eventually the contract is signed and the investment is carried out.

  1. What is the rent that Engine Ltd expects to make?
  2. What is the value of the relationship-specific investment?
  3. What is the quasi-rent?
  4. Will Aprilia have incentives to renegotiate the contract once Engines Ltd has carried out the investment? Will the ‘hold-up problem’ emerge? Briefly explain.
  5. Assuming that the managers of Engines Ltd are rational agents, would they have signed the contract with Aprilia in the first place and would they have carried out the investment? Briefly explain.

Figure 2 Hold-up problem: a numerical example

The exercise is structured in such a way as to require the students to compute, step by step, the values of the main determinants of the hold-up problem. Thus, once questions 1–3 are solved, the student has all the necessary elements to understand whether the hold-up problem will emerge or not. When the problem is organised in this way, the student is helped to approach it in a structured and logic manner. A problem that included only questions 4 and 5 would require the student to do much more background thinking. This can be problematic, particularly in the early stages of the module, if the student has not fully developed an ability to use elementary information to deal with complex issues.

The seminar then continues with the analysis of two related short case study newsclips. The first article (Figure 3) describes a dispute between a British low-cost airline and the owners of the airport from which the airline mainly operates. The article is actually a quotation drawn from the airline’s website (http://www.easyjet.com/en/).

Stop Barclays increasing your air fares by £5! Barclays Bank now controls Luton Airport and wants to increase landing charges to easyJet customers at Luton by 300%, or about £5 per passenger, a significant percentage of easyJet airfares. John Prescott, the Secretary of State for the Environment, Transport and the Regions will decide SHORTLY whether Barclays should be allowed to get away with it. John Prescott has two options – either let Barclays charge whatever it likes, or ask special government appointed experts to decide how much easyJet and other airlines’ customers should pay for using Luton Airport.’

Figure 3 Quotation from airline website

The students were given some basic background information on how the airline industry operates and then were asked to identify within this particular case the main determinants of the hold-up problem. This task helps students develop a rational and structured approach to the analysis of information and the synthesis of relevant knowledge. The following are examples of questions asked in the seminar:

1. easyJet is a new airline. Explain the process that led it to choose Luton as its main hub.

2. What types of investment did easyJet carry out at Luton Airport?

3. Why is Luton Airport in a strong negotiating position with easyJet? Given the contractual dispute, why does easyJet not change hub?

Once the students were able to provide an informative and logical analysis of the case study, they were asked to provide an evaluation of the business dispute by suggesting, in particular, the strategies available to the airline. The main aim of this task is to reinforce in the students a clear understanding of the core element of the hold-up problem (i.e. asset specificity) and to evaluate alternative courses of action for a solution of the dispute. The students would first be asked to express their own thoughts and then they would be shown Figure 4, which reports the evolution of the dispute between the two business partners.

‘Both easyJet and Ryanair are facing severe cost pressures at their home airports. When easyJet opened services from Luton Airport, it negotiated a five-year deal where the airport earned just £1.60 per passenger plus a 62p handling charge. Luton wants £7.89 per passenger, and two weeks ago reached an interim deal where easyJet will pay a fee believed to be £5 to £6 per passenger.

easyJet insists that this will not lead to higher prices, but it is axing its Luton–Liverpool route, which started at £20 return. “It is just not commercially viable to offer services at that price”, says an easyJet spokeswoman. She says expansion plans at Luton are now on hold while it develops alternative hubs at Geneva, Amsterdam and Liverpool.’ (Guardian, 17 February 2001)

Figure 4 The evolution of the dispute

The article shows the short- and long-run strategies chosen by the airline. While in the short run it had to give into the airport’s requests, the long-run response is diversification and less asset specificity. By the end of the seminar, the students should have developed an ability to investigate similar cases, identify the presence of the hold-up problem and suggest solutions.