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Faculty Pioneer Award Finalist - David Besanko

Biography

Kellogg School of Management
IBM Professor of Regulation & Competitive Practices

Professor David Besanko is IBM Professor of Regulation & Competitive Practices at the Kellogg School of Management at Northwestern University.

Besanko is a Kellogg graduate, having received his Ph.D. in Managerial Economics and Decision Sciences in 1981. He received his AB in Political Science from Ohio University in 1977. Before joining the Kellogg faculty in 1991, Professor Besanko was a member of the faculty of the School of Business at Indiana University from 1982 to 1991. In addition, in 1985, he held a post-doctorate position on the Economics Staff at Bell Communications Research.

Professor Besanko teaches courses in Microeconomics and Competitive Strategy. In 1995, 2010, and 2016, the graduating class at Kellogg awarded Professor Besanko the L.G. Lavengood Professor of the Year, the highest teaching honor a faculty member at Kellogg can receive. In 2015 Professor Besanko received the Faculty Pioneer Award from the Aspen Institute's Business and Society Program (dubbed the "Oscar of the business school world" by the Financial Times). He was a finalist for that award in 2013. At the Kellogg School, Professor Besanko has received the Sidney J. Levy Teaching Award (1998, 2000, 2011, 2013), the Chair's Core Teaching Award (1999, 2001, 2003, 2005), and the Faculty Certificate of Impact (2009, 2010, 2011, 2012, 2013, 2015, 2016, 2017). end

Professor Besanko research covers topics relating to industry dynamics, competitive strategy, industrial organization, the theory of the firm, and economics of regulation. He has received grants from the National Science Foundation and from the Citicorp Behavioral Science Research Council to support this research. He is a member of the editorial boards of The Journal of Regulatory Economics, Business and Politics and Quantitative Marketing and Economics. He has over 50 articles published and forthcoming in leading professional journals in economics and business. Among other places, his work has appeared in the American Economic Review, _the _Quarterly Journal of Economics, _the _RAND Journal of Economics, _the _Review of Economic Studies, The Journal of Law and Economics, _and _Management Science. _Along with David Dranove, Mark Shanley and Scott Schaefer, Professor Besanko is a co-author of _Economics of Strategy, _a widely used textbook in MBA courses on strategic management and competitive strategy. His textbook _Microeconomics with Ron Braeutigam is now in its fifth edition.

Professor Besanko served as the chair of the Department of Management and Strategy from 1992 through 1996. During the academic year 2000-2001, he chaired the search committee to identify the new Kellogg dean. From 2001 to 2003, he served as Kellogg's Senior Associate Dean for Curriculum and Teaching, and from 2007 to 2009 he served as Senior Associate Dean for Strategy and Planning.

Areas of Expertise Competitive Analysis
Industrial Organization Economics
Microeconomics
Public Policy
Regulation
Strategy

Education PhD, 1982, Managerial Economics and Decision Sciences, Northwestern University

MS, 1980, Managerial Economics and Decision Sciences, Northwestern University

BA, 1977, Political Science, Ohio University

Academic Positions IBM Professor of Regulation and Competitive Practice, Strategy, Kellogg School of Management, Northwestern University, 2015-present

Alvin J. Huss Distinguished Professor of Management and Strategy, Management & Strategy, Kellogg School of Management, Northwestern University, 1995-2014

Senior Associate Dean for Academic Affairs: Strategy & Planning , Kellogg School of Management, Northwestern University, 2007-2009

Senior Associate Dean for Academic Affairs: Teaching & Curriculum, Kellogg School of Management, Northwestern University, 2001-2003

Professor of Management and Strategy, Management & Strategy, Kellogg School of Management, Northwestern University, 1991-1995

Associate Professor of Business Economics and Public Policy, Indiana University, 1988-1991

Assistant Professor of Business Economics and Public Policy, Indiana University, 1982-1988

Honors and Awards Faculty Pioneer Award, Aspen Institute

Finalist, Faculty Pioneer Award, Aspen Institute

Certificate of Impact Teaching Award, Kellogg, 2017, 2016, 2015, 2013, 2012, 2011, 2009

Sidney Levy Teaching Award, 2012-2013, 2010-2011, 2008-2009, 1999-2000, 1997-1998

L.G. Lavengood Outstanding Professor of the Year Award, Kellogg School of Management, 2016, 2010, 1995

Faculty Impact Award, 2009, 2010, 2011, 2012, 2013, 2015

Kellogg Alumni Choice Teaching Award, Kellogg Graduate School of Management, 2006

Kellogg Alumni Professor of the Year Award, Kellogg School of Management, 2006

Finalist for L. G. Lavengood Outstanding Professor of the Year Award, Kellogg School of Management, 2009, 2006, 2001, 2000, 1999

Chairs' Core Course Teaching Award, Kellogg School of Management, 2004-2005, 2002-2003, 2000-2001, 1998-1999

Outstanding Young Faculty Award, Indiana University, 1989

MBA Teaching Excellence Award in Economics, Indiana School of Business, 1988, 1987, 1986

Doctoral Students Teaching Excellence Award, Indiana School of Business, 1988

Beta Gamma Sigma, Beta Gamma Sigma International Honor Society, 1982

Phi Beta Kappa, Phi Beta Kappa Society, 1977

Editorial Positions Ad hoc reviewer, RAND Journal of Economics, 2016-2017

Ad hoc reviewer, Economics Letters, 2017-2017

Ad hoc reviewer, Journal of Regulatory Economics, 2016-2016

Ad-hoc Reviewer, Journal of Economic Theory, 2015-2015

Editorial Board, Review of Industrial Organization, 2006-present

Editorial Board, Journal of Regulatory Economics, 1988-present

Ad-hoc Reviewer, RAND Journal of Economics

Ad-hoc Reviewer, Review of Economic Studies

Ad-hoc Reviewer, International Economic Review

Ad-hoc Reviewer, Journal of Infrastructure Systems

Education Academic Positions Honors and Awards Editorial Positions

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Cases

Besanko, David and Shana Cui. 2016. Railway Restructuring and Organizational Choice: Network Quality and Welfare Impacts. Journal of Regulatory Economics. 50(2): 164-206.

This paper compares alternative ways of structuring competition in a railway system: vertical separation (VS) and horizontal separation (HS). We compare each structure in terms of its impact on network quality, consumer surplus and social welfare. To do so, we use a two-stage game under HS and a three-stage game under VS to derive Nash equilibrium network qualities, consumer surplus and social welfare, respectively. We highlight four distinct incentive effects that shape network quality under each structure, and we point out that, on balance, they tend to favor higher network quality under HS. However, intensity of transport service competition under each system also plays a critical role in shaping consumer surplus and social welfare. The best case for HS occurs when there is a moderate amount of price competition between the vertically integrated systems, while the best case for VS occurs when there is intense price competition between transport operators. Using computational analysis, we show that it is more likely that HS dominates VS on all three performance metrics.

Besanko, David and Ulrich Doraszelski. 2004. Capacity Dynamics and Endogenous Asymmetries in Firm Size. RAND Journal of Economics. 35(1): 23-49.

Empirical evidence suggests that there are substantial and persistent differences in the sizes of firms in most industries. We propose a dynamic model of capacity accumulation that is consistent with the observed facts. The model highlights the mode of product market competition and the extent of investment reversibility as key determinants of the size distribution of firms in an industry. In particular, if firms compete in prices and the rate of depreciation is large, then the industry moves toward an outcome with one dominant firm and one small firm. Industry dynamics in this case resemble a preemption race. Contrary to the usual intuition, this preemption race becomes more brutal as investment becomes more reversible.

Besanko, David and Martin K. Perry. 1993. Equilibrium Incentives for Exclusive Dealing in a Differentiated Products Oligopoly. RAND Journal of Economics. 24(4): 646-667.

We conside the incentives for oligopolistic manfacturers to adopt exclusive dealing. Manufacturers producing differentiated brands can choose to distribute through exclusive retail dealerships or nonexclusive dealerships. With nonexclusive dealing, manufacturers face an interbrand externality because brand-enhancing investments made by one manufacturer may benefit the brands of other manufacturers. Although exclusive dealing eliminates this externality, oligopolistic manufacturers may not choose exclusive dealing. Exclusive dealing eliminates this externality, oligopolistic manfacturers may not choose exclusive dealing. Exclusive dealing enhances the incentive to invest, but the promotional investments are a form of competition between manufacturers. Thus, manufacturers might earn higher profits with nonexclusive dealing making lower promotional investments. We find cases in which nonexclusive dealing is a dominant strategy. We also find cases in which some, but not all, manufacturers adopt exclusive dealing. Moreover, even if adoption of exclusive dealing by all manufacturers is the equilibrium, it can arise from a prisoner's dilemna in that each manufacturer would prefer nonexclusive dealing.

Baron, David and David Besanko. 1992. Information, Control, and Organizational Structure. Journal of Economics & Management Strategy. 1(2): 237-275.

This paper investigates how a designer of an organization (referred to as the regulator) should organize a production activity in which two different units produce components and where each unit has private information about its costs. Three organizational structures are analyzed. In the first (informational consolidation), the regulator contracts with a consolidated unit that produces both components. In the second (informational decentralization) the regulator independently contracts with the producer of each component. In the third (informational delegation), the regulator contracts with one of the units, which in turn subcontracts with the other. In each case, the regulator's optimal mechanism consisting of payment and output schedules is fully characterized. Informational consolidation and informational decentralization yield different output schedules. Under informational decentralization, the optimal output schedule may not depend on the sum of the marginal costs of each component, but when it does, the regulator strictly prefers informational consolidation to informational decentralization. Informational delegation is shown to be equivalent to informational decentralization when the regulator can observe the contracting between the units.

Baron, David and David Besanko. 1988. Monitoring of Performance in Organizational Contracting: The Case of Defense Procurement. Scandinavian Journal of Economics. 90(3): 329-356.

This paper contains an agency-theoretic analysis of procurement contracts in which the government designs optimal linear contracts for a risk-averse supplier in the presence of moral hazard, private information, and imperfect monitoring. Optimal contracts deviate from first-best risk sharing. The direction of the deviation depends on t he relative severity of the moral hazard and private information problem s and on the precision of the monitor. In contrast to the usual result in the moral hazard literature, the government may, in some cases, prefer that the effort of the supplier be taxed. Choice of the precision of the monitor and the categories of costs covered by the monitor are also studied.

Besanko, David. 1987. Monopoly and Quality Distortions: Effects and Remedies. Quarterly Journal of Economics. 102(4): 743-767.

A monopolist that sells in a market in which consumers differ in their willingness to pay for quality will distort and enlarge the range of products offered for sale. We examine the positive and normative impacts of remedies used to counteract such distortions. For the case of a price ceiling, the monopolist improves quality at the low quality end of the market, offsetting the distortion induced by the unregulated exercise of monopoly power. Social welfare can be shown to increase for a sufficiently slight degree of price regulation. For minimum quality standards, the social welfare implications are ambiguous because the standards may exclude some consumers from the market.

Besanko, David and Anjan V. Thakor. 1987. Competition, Collateral, and Sorting Equilibria in the Credit Market. International Economic Review. 28(3): 671-690.

Lenders usually know less than borrowers about payoff-relevant borrower attributes. These attributes may be a personal characteristic as in Jaffee-Russell [1976] or some parameter of an earnings distribution as in Stiglitz-Weiss (S-W) [1981]. In either case, the informational asymmetry is likely to affect the credit market equilibrium. The principal objective of this paper is to explore the role of market structure in credit allocation when there is such an informational asymmetry. The questions to which we seek answers are: Why do lenders sometimes ration credit even when deposit availability is relatively unconstrained? What is the economic function of collateral and how is its usefulness affected by credit market structure? What is the impact of collateral on credit rationing? Why do we observe cosigners? These issues are analyzed under two market structures. In Section 2, we assume that a bank acts as a price-setting monopolist in the loan market. Two principal results are obtained. First, collateral will not be used unless it is sufficiently valuable to the bank to make the loan riskless. Second, in some cases, the bank's credit policy discourages high-risk borrowers from applying for credit. The bank need not explicitly reject these applicants; it simply raises the loan interest rate to induce them to exit the market.

Baron, David and David Besanko. 1984. Regulation, Asymmetric Information, and Auditing. RAND Journal of Economics. 15(4): 447-470.

This article analyzes a model of a regulated firm that is better informed about its cost function than is the regulator. By auditing at a cost, however, the regulator is assumed to be able to observe the realized cost of the firm. If the regulator "finds" that the firm had misrepresented its costs at the time at which prices were set, he can order a refund to consumers. In the optimal policy the regulator audits when the firm reports for pricing purposes that its costs will be high and orders a refund when the audit finds that realized costs are lower than anticipated, given the original report. A separation result that obtains for an important case indicates that the initial pricing decision is independent of the auditing decision. The auditing decision, however, depends on the price that was initially set. The optimal auditing strategy is characterized and the nature of the welfare gains are identified. The methodology used in the analysis involves the characterization of an equilibrium of a revelation game with an ex post observable.

Besanko, David and Melissa Ulan. 2011. Should the Ethanol Blender’s Credit Be Eliminated?. Case 5-111-001 (KEL523).

In December 2010, one U.S. legislative action was largely overlooked in the popular press: the one-year extension of the 45-cent-per-gallon Volumetric Ethanol Excise Tax Credit (VEETC), commonly known as the “blender’s credit.” Both proponents and opponents of the blender’s credit liked to cite data to support their positions. Proponents pointed out the number of jobs created by new ethanol plants, while opponents cited unfavorable energy balances from the use of ethanol and the overall budgetary impact of the blender’s credit. What was less clear—but potentially much more important than the selective data cited by advocates and critics of ethanol—was the overall impact of the blender’s credit on the U.S. economy. In particular, to what extent did the ethanol subsidy—by influencing the allocation of resources to the ethanol market—act as a drag on efficiency in the U.S. economy?

This case presents a history of ethanol in the U.S. and an overview of the market for ethanol-based motor fuel, including data on demand and supply fundamentals. It also discusses the broader U.S. energy market, as well as the U.S. market for corn. The case reviews other policy interventions besides the ethanol tax credit that have an impact on the market for ethanol-based motor fuel, such as tariffs and mandates. Finally, it surveys the ways other countries around the world, such as Brazil, have supported the use of ethanol-based fuel.

Besanko, David. 2003. Corning, Inc: 1999. Chicago: Kellogg School of Management, Case 5-403-753.

In 1999 the market for optical fiber was white hot. Several large manufacturers of optical fiber, including Corning, Inc., were considering significant expansions in their production capacity. This case presents the capacity expansion problem from the perspective of Corning, Inc. Students can explore how market fundamentals and strategic considerations shape a firm’s incentives to undertake a major expansion of capacity. Note: the use of this case is restricted to classes at the Kellogg School of Management.

Besanko, David and João Tenreiro Gonçalves. 2010. High-Speed Rail in Portugal. Case 5-410-751 (KEL513).

Rede Alta Velocidade, SA (RAVE), the state-owned company responsible for planning and developing a major high-speed rail project in Portugal, must persuade both public officials and lenders that the project is worth undertaking. It must also make a recommendation on the appropriate organizational form for the enterprise. Specifically, it must determine the role of the Portuguese government in financing and operating the high-speed rail network, with options ranging from full development and management of the project by the public sector to completely private development and management. Lying in between these two polar cases were a variety of hybrid models, often referred to as public-private partnerships (PPPs). Using data in the case, students have the opportunity to perform a benefit-cost analysis of the project. They also must think carefully about the optimal role of the government in a major new infrastructure project.

Al-Najjar, Nabil, David Besanko and Robert Uchoa. 2004. Credit Solicitations as Market Experiments in the U.S. Credit Card Industry. Case 5-204-252 (KEL005).

The case describes market experiments conducted by a major credit card issuer. In a typical experiment, the issuer sends out hundreds of thousands of solicitations based on information received from credit reporting agencies (e.g. credit score, past delinquencies, etc.). Selection bias is striking: the average risk profile of those responding to higher interest rates is significantly worse than that of respondents to lower rates. Tracking respondents for 27 months after the experiment, respondents to higher rates displayed significantly higher delinquency and bankruptcy rates. This short case is based on an excellent research paper by Larry Ausubel who obtained proprietary data on the condition of not revealing the name of the issuer. Contact Professor Al-Najjar for teaching methods, slides, and classroom exhibits.

Besanko, David. 2004. Zoltek. Case 5-204-254 (KEL007).

In 1996 the St. Louis-based manufacturer Zoltek launched a massive expansion of capacity to produce commercial-grade carbon fiber, a composite material used to produce a wide variety of end products ranging from sporting goods to windmill blades. Zoltek’s goal was to become the dominant firm in a market whose growth was expected to be spectacular starting in the late 1990s. This case describes Zoltek’s major strategic moves in the mid-1990s and can be used to explore the economic logic of a major capacity commitment. The case provides a possible example of the Stackelberg leadership model from oligopoly theory.

Besanko, David and Takatoshi Imada. 2004. Asahi's Single-Brand Strategy. Case 5-204-251 (KEL003).

In early 2000, Asahi’s senior management was under considerable pressure to launch its own brand of happoshu, a low-end form of beer that enjoyed certain tax benefits under Japanese law. Unlike its major rivals, all of whom had launched happoshu brands in the previous few years, Asahi steadfastly refused to enter the happoshu category. The case allows students to explore the economic logic of Asahi’s strategy. The case can be used to study how the entry of a new product affects price competition across two closely related product categories (beer and happoshu) and how an anticipation of changes in price competition might affect the economics of the launch decision.

Al-Najjar, Nabil, David Besanko and Amit Nag. 2004. California Power Crisis. Case 5-403-759 (KEL004).

Between May, 2000 and January, 2001 the recently deregulated electricity market in the state of California experienced what many commentators have characterized as a meltdown. Over that period wholesale electricity prices increased over 500 percent, power emergencies and the threat of rolling blackouts became daily occurrences, and the state’s largest investor-owned utility was thrust into bankruptcy. This case details California’s attempt to deregulate its wholesale and retail electricity markets and gives students the opportunity to diagnose the causes of California’s crisis. The case contains data that enables students to identify the drivers of increases in the wholesale price of electricity in California.

Besanko, David and Saahil Malik. 2009. Reforming Social Security Around the World. Case 5-409-758 (KEL493).

In May 2009 the Office of the Chief Actuary for the U.S. Social Security Administration projected that by 2016 the Social Security Trust Fund would begin to spend more money than it took in through tax revenue. Further, by 2037 the balance in the Trust Fund would be down to zero, necessitating cuts in benefits to retirees. The U.S. Social Security system thus faced a long-term financial problem that needed to be addressed sooner rather than later. The experience of other countries in reforming their own systems of old-age insurance might provide some guidance for U.S. policymakers as they attempt to deal with the long-run fiscal challenges facing the U.S. Social Security system. This case focuses on reforms of old-age insurance systems in three countries: Australia, Mexico, and Sweden.

Besanko, David and James Lee. 2009. The End of the Beginning of Venture Capital. Case 5-209-252.

In the 1950s, the United States government created the Small Business Administration to fill a gap in equity and debt financing available to small businesses. By 2004, the program designed to provide equity financing suffered from poor performance and irrelevance. A team of consultants engaged by the SBA will analyze the economic rationales that prompted the creation of the program and recommend appropriate action to maintain, terminate, or alter the program to match contemporary circumstances.

The case illustrates the effects of government intervention in equity and debt markets over several decades with varying economic conditions. Arguments for and against the creation of the programs are given, along with historical developments that affect the program’s merits. The case provides a narrative history of venture capital in the United States. The modern venture capital investing process is compared to the government equity finance program.

Besanko, David, Saahil Malik and Vidhyashankar Balasubramanian. 2011. The U.S. Gasoline Tax: Time for a Change. Case 5-409-751 (KEL517).

Although the federal gasoline tax played multiple roles in financing surface transportation infrastructure in the United States, experts did not agree on the tax’s purpose. Some argued that it was essentially a fee for users of the nation’s federally supported highways. Others suggested that it should play a more prominent role in environmental, energy, and transportation policy by correcting for driving-related externalities. Still others suggested that it should be used to reduce the federal budget deficit. Finally, the tax itself had remained at the same level since 1993, and with the Highway Trust Fund virtually insolvent, many experts believed it was time for an increase. The case presents a background on the U.S. federal gasoline tax, an overview of the market for gasoline in the United States, and survey of gasoline taxes in U.S. states as well as several other countries around the world.

Al-Najjar, Nabil and David Besanko. 2004. Motorola in the Wireless Handset Market. Case 5-204-261 (KEL023).

Motorola invented mobile telephones and by the end of the 1980s came to dominate the mobile handset market with more than 80 percent market share. A few years later, Motorola faced a key strategic choice of whether to focus its considerable resources on consolidating its dominance of the analogue handset market, or to shift these resources to the emerging digital handset technologies. This decision shaped the handset industry and the role Motorola played in it for the next decade. The case provides a vivid illustration of incumbents’ puzzling inertia towards initiating and participating in disruptive technologies.

Besanko, David. 2004. The Mother of All (Pricing) Battles: The 1992 Airline Price War. Case 5-204-250 (KEL006).

This case provides a narrative description of the price war in the U.S. airline industry that broke out in the Spring of 1992. The case can be used in competitive strategy or microeconomics classes to explore the root causes of price wars.

Besanko, David and Christopher Stori. 2006. Eurotunnel versus the Ferries. Case 5-206-256 (KEL190).

This case considers the competitive strategy of the Channel Tunnel just prior to the time it opened for business in 1994. Focusing specifically on the tunnel's Le Shuttle service for freight and passenger traffic, the case gives students an opportunity to explore whether Le Shuttle should follow a premium pricing strategy relative to the cross-channel ferries, match the ferries' prices, or undercut the ferries' prices. Following a section on the history of the tunnel's construction, the case provides an in-depth discussion of the cross-channel ferry business and the Le Shuttle services. The case concludes by posing the question: What pricing strategy should Le Shuttle follow? The case can be used in a managerial economics course to illustrate the key drivers of price competition in a differentiated products industry: differences in marginal cost, vertical differentiation among competitors, and the degree of horizontal differentiation in the market. The case can also be used in a competitive strategy class to illustrate the sources and sustainability of competitive advantage.

Besanko, David and Johannes Horner. 2006. London's Congestion Charge. Case 5-206-257 (KEL193).

The case describes the events leading up to the imposition of the London congestion charge. Views about the congestion charge, both pro and con, are presented. The case also discusses, in general terms, the economics of traffic congestion, pointing out that an unregulated market for driving will not reach the social optimum. The case contains sufficient data for students to estimate the deadweight loss in an unregulated market. Students can also estimate the reduction of the deadweight loss due to the imposition of the congestion charge in 2003. The case provides a good illustration of how an unregulated market with negative externalities can lead to an overprovision of a good (in this case driving). It also shows how an externality tax (in this case, London’s congestion charge) can lead to an improvement in social welfare.

Besanko, David, Sarah Gillis and SiSi Shen. 2009. Polio Eradication—Within Our Reach?. Case 5-409-757 (KEL492).

The years 2011, 2012, and 2013 witnessed both significant developments and setbacks in global polio eradication efforts. On the positive side, January 13, 2012, marked a full year since India had detected a case of wild poliovirus. On the negative side, polio continued to be endemic in three countries—Pakistan, Afghanistan, and Nigeria—and in those countries the goal of eliminating polio seemed more challenging than ever. Between December 2012 and January 2013, sixteen polio workers were killed in Pakistan, and in February 2013, nine women vaccinating children against polio in Kano, Nigeria, were shot dead by gunmen suspected of belonging to a radical Islamist sect. In addition, after a 95 percent decline in polio cases in 2010, the number of cases in Nigeria rebounded in 2011. Recognizing that polio was unlikely to be eliminated in these countries in the near term, the Global Polio Eradication Initiative moved its target date for eradication from 2013 to 2018.

These setbacks sparked a debate about the appropriate strategy for global eradication of polio. Indeed, some experts believed that recent setbacks were not caused by poor management but were instead the result of epidemiological characteristics and preconditions that might render polio eradication unachievable. These experts argued that global health efforts should focus on the control or elimination of polio rather than on the eradication of the disease.

This case presents an overview of polio and the Global Polio Eradication Initiative and recounts the successful effort to eradicate smallpox. The case enables a rich discussion of the current global strategy to eradicate polio, as well as the issue of whether eradication is the appropriate global public health objective. More generally, the case provides a concrete example of a particular type of global public good, namely infectious disease eradication.

Besanko, David and Brett Burgess. 2007. Subsidies and the Global Cotton Trade. Case 5-307-507 (KEL348).

The case describes the competitive advantages that U.S. farmers enjoy in the global cotton industry and the subsidies they receive from the U.S. federal government. Arguments for and against the subsidies are presented in the context of global competition. The case includes the data needed to estimate a supply curve for 2004 cotton production and predict the average 2004 cotton price using total cotton consumption for 2004. Students can also estimate the result of eliminating the U.S. cotton subsidies on the average 2004 cotton price.

The learning objective of the case is for students to have the opportunity to learn about the history and structure of U.S. cotton subsidies as well as their impact on global cotton prices. Students also are able to practice building and interpreting an industry supply curve.

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