BMW - Bavarian Monopolist at Work
BMW have been fined SFr156m ($163m) by Swiss Competition Authorities for restricting the supply of BMW and MINI cars to Swiss purchasers.
read more...»Made in China - but not quite so cheaply…...
How long can China keep its comparative advantage of cheap production for manufacturing goods? We are aware of rising inflation in China which is eroding their advantage, and here is an article about a UK firm which manufactures cushions, some from a factory in Kirkby on Merseyside and some from his factory in the Zhejiang province in China. The story comes from a programme ‘The Town taking on China’ to be shown on BBC2 at 8pm tonight - and subsequently on i-player.
read more...»Unit 3 Micro: Key Diagrams for Business Economics
Here is a revision download containing some key theory diagrams and accompanying explanation for topics in business economics / theory of the firm / market structures.
Key_Diagrams_A2_Business_Economics.pdf
Unit 3 Micro: Revision on Contestable Markets
This blog links to an updated revision presentation on the economics of contestable markets.
read more...»Unit 3 Micro: Post Office Threatens Smaller Photo Businesses
As the Royal Mail moves towards an initial public offering the business is searching for as many ways as possible of expanding their revenue base to maintain the viability of hundreds of local post offices. One service is the lucrative market for passport and driving licence photos - a product that I suspect has a fairly low price elasticity of demand, I paid £5 for 5 photos in a train station the other week! This Channel 4 news video looks at the battle between the Post Office and independent private sector photo retailers who claim the government is skewing the market against independent shops by giving the Post Office a contract to renew driving licences and threatening to do the same for passports.
read more...»France and Flexible Employment
This article could be useful as an illustration of the EU context in relation to employment in general, and flexible employment in particular. Attracting inward FDI is arguably a significant benefit of UK membership of the EU, and one of the advantages which the UK can offer compared to, say, France is relatively flexible employment laws.
read more...»Unit 3 Micro: Contestable Markets - Lucozade takes on Coca Cola
A sparkling hat tip to Pete Davies for spotting this one. 1.7 billion litres of cola drank were drunk globally in 2010 & now Lucozade (owned by GlaxoSmithKline) wants a slice of the action! with the launch of Lucozade Energy Cola. They already have a well-established position in the energy drinks market. Can they overcome possible consumer resistance to this product and brand extension?
Marketing Week reports something revealing about their point of sale strategy. Lucozade Energy Cola has already reached retailers ahead of the launch apparently with written guidelines for shopkeeprs asking for it to be stocked in the “energy drink section on the chiller”, but placed “next to the coke selection where possible.!
Maybe the new product will find a way into the secret stashes of this Manchester schoolboy entrepreneur?
Competition Plan for Universities
So the Universities White Paper has been published. Words like “Competition” on news feeds instantly make me sit up and take notice. As my Year 12s embark on their odyssey into market structures and ever more close encounters with efficiency, I think this might just be the case study of the moment. After all its subject matter is foremost in many of their minds.
read more...»Do you agree that the government should provide support to the UK car industry?
This is a fairly classic A2 macroeconomics question, and one that the European Automobile Manufacturers Association has been considering at their meeting in London last week. Their conclusion? That non-European governments should scale back assistance for their own automotive industries, but at the same time governments in Europe should support the industry’s efforts to cut car emissions.
read more...»A2 Micro: Competition Policy
The aim of competition policy is promote competition; make markets work better and contribute towards improved efficiency in individual markets and enhanced competitiveness of UK businesses within the European Union single market.
read more...»A2 Micro: The Importance of Profit
Profit measures the return to risk when committing scarce resources to a market or industry. Entrepreneurs take risks for which they require an adequate rate of return. The higher the market risk and the longer they expect to have to wait to earn a positive return, the greater will be the minimum required return that an entrepreneur is likely to demand. Economists distinguish between different types of profit – explained below:
read more...»A2 Micro: Market Structure, Conduct & Performance
This updated revision presentation is designed to help students preparing for markets-related topics on A2 economics specifications.
Market Structure Conduct & Performance - revision presentation
Download printable (pdf) slide handout
read more...»Unit 3 Micro: Perfect Competition
A revised revision presentation on perfect competition comes in three formats
Streamed presentation can be found here
read more...»A2 Micro: Competition and Efficiency
Are highly competitive markets most likely to lead to outcomes that achieve economic efficiency? The common characteristics of markets that are considered to be “competitive” are:
read more...»Electric cars: government failure?
There was a great in-depth look at activity in the car market in the Sunday Times yesterday with regards to electric powered vehicles.
AS Micro Revision: Market Power
A revision note on aspects of industries in which there is strong market power among one or a few businesses. Most markets are competitive with a number of suppliers (producers) competing for the demand of consumers. Some are more competitive than others. At AS level it is important to understand some of the factors that lead to market (monopoly) power and to evaluate the costs and benefits of markets where monopoly power exists together with the effects of different types of government intervention. The revision note is available to download here: Revision_Market_Power.doc
Smartphones and Creative Destruction
Is the multi-function and ubiquitous smartphone one of the best examples of creative destruction. This article “10 Things Killed by the Smartphone” points to a clutch of devices and products whose demand has been affected by the mass volumes of data-heavy smartphones that now dominate the market.
MP3 Players
Nintendo 3DS and Sony PSP
Point-and-Shoot Cameras
Personal Video Players
Voice Recorders
Portable GPS Navigation Devices
Personal Digital Assistant (PDA)
Wristwatch
iPod Nano
Paper Maps
Telephone Directory Assistance
A2 Micro: Updates on Competition Issues
Here are some links to recent news stories on competition and monopoly issues in the UK and the EU Single Market
read more...»Nokia and Microsoft form strategic partnership
It would seem that the only way two major business are able to compete in the competitive mobile phone market is by joining forces. Microsoft and Nokia are set to pool technology and assets in the hope of creating a worthwhile impact on the smart-phone market. Will they succeed?
How can this story be used in the classroom?
read more...»Tracking Market Share in Web Browsers
The concept of market share is an important one in economics. But what data can teachers use other than the (slightly) tired example of Tesco, Asda et al in the UK supermarket market? One approach is to conduct a piece of primary market research amongst the class to see what their preferred Internet browser is and then to compare the market share calculated from student preferences with the overall global browser market…
read more...»Regulation and the banking industry: reflections from Davos
If, like my school, you haven’t entered students for Unit 3 in January but are teaching both A2 units side-by-side for June examination, you might be looking for examples of competition policy and regulation to offer your students in the coming weeks. The report of the Independent Commission on Banking and the focus on regulation at last week’s Davos meeting are very well timed; this report filed today by Tim Weber of the BBC gives a neat summary of the time leading up to Lehman’s collapse, and offers a rather chilling conclusion from informal dinner-table discussions with the world’s top bankers that it is unlikely that regulators can, in practice, untangle the systemic risks in the financial system that make it imperative for government’s to step in and support failing banks.
If you would like to follow this up as an example with students, you might try some of the following links. There are numerous articles assessing the report of the ICB - just a couple are given here.
read more...»Tesco - Time to start a price war!
Here is some pure gold dust for students of competition and strategy in the food retailing industry! A leading analyst (Dave McCarthy at Evolution Securities) has written a lengthy research document building the case for Tesco to launch an aggressive price war - permanently cutting prices on hundreds of different items. Much of the case for the price discounting is reproduced in this Guardian article and key arguments are that Tesco is better able to withstand the hit on group profits from doing it, and that lowering the returns from the sector will help to bring an end to the land grab and building programme that ultimately may not be in anyone’s interests.
Has Tesco lost its way recently? Sainsbury’s was the best performing supermarket over the Christmas period. Its like-for-like sales were up by 3.6%. I have stopped shopping at Tesco partly because the retail experience is so dire (the mega store in Slough is just about the most soulless place on the planet) and also because Sainsbury’s and Waitrose have significantly raised their game in keeping products available on the shelves and in extending their value range. The Waitrose “Essentials” range has been a big success.
A new CEO provides a window of opportunity for a change of direction at Tesco and this analyst believes that Tesco needs to exploit first mover advantage before the rivals become too strong to absorb future price wars.
Read: Analyst advises Tesco to launch a price war to damage the competition
Barriers to entry - how important is customer loyalty?
There are lots of excellent reports coming out at the moment focusing on the strategic issues facing businesses as they prepare for the new year. I was interested to pick up on one part of a report from Ipsos MORI which highlights the variation in levels of customer loyalty in different consumer markets.
A chart from this report is highlighted below and it generates some interesting comparisons that students might analyse as they consider the relative importance of customer loyalty as a barrier to entry:
According to the data, sectors such as grocery retailing and financial services enjoy much higher consumer loyalty than hotels, department stores or clothing retailers.
Why?
*Hotels are listed at the bottom of the table, yet they are active in promoting use of customer loyalty schemes?
* To what extent does high customer loyalty present an insurmountable barrier to entry for a new entrant wanting to build a viable scale in a new market?
* Is the best way to overcome entrenched customer loyalty to enter a market through acquisition?
Movie Rental on a USB Stick!
Reading this piece gave me flashbacks to the mid 1980s when I would trek in excited fashion to my local petrol station who did a brisk trade in renting out VCR tapes to customers wanting to watch a move over the weekend.
A generation later and the movie rental industry has gone through several transformations. Content has migrated online and high street movie rental businesses are thin on the ground for good reason! Here is a new kid on the block attempting to challenge movie streaming businesses and the likes of Love Film. A US business Flix on Stix Kiosks allow you to download movies onto a USB 3.0 stick loaded with proprietary anti-piracy software. You choose how many movies or games to download and the rental period - the files are self deleting. It is an interesting business model that cuts out the cost of returning DVDs through the mail or in person. And rented movies can presumably be played on any device you choose within the rental period. Dynamic efficiency in action? More information here How long before this business model arrives in the UK?
On the first day of Christmas -
There are lots of aspects of economics in this little story from the Independent on Wednesday 1st December. The final section of the report into the effects of the early snow falls is about Christmas tree shortages, and links to this BBC story about Nordmann fir trees, and the two together contain several references to the A level syllabus:
read more...»Google investigation
The European Commission has launched an investigation into Google after other search engines complained that the firm had abused its dominant position.
The EC will examine whether the world’s largest search engine penalised competing services in its results…
Growth and Strategy at Domino’s Pizza
Despite or perhaps because of difficult economic times, the pizza delivery company Dominos UK & Ireland has enjoyed rapid growth over the last couple of years. The company, which owns the Master Franchise to the Domino’s brand in the UK and Ireland, now operates through over 130 franchisees with an average of 4.5 stores each. And their long-term strategy contains the target of rolling out at least one new Dominos store per week in each of the next ten years, growing the business into a billion pound brand in the UK – almost double the current size.
read more...»The Rise and Rise of Internet Monopolists
There is a fascinating piece here from the World Street Journal Blog on the inexorable rise of a new breed of internet monopolist - businesses with dominant positions in their industry space that millions of people cannot do without from day to day and where the effective barriers to genuine competition are pretty fierce. The article emphasises the importance of first mover advantages and also network economies of scale - a demand-side economy of size that normal economics textbooks are slow to introduce into their coverage.
“It’s hard to avoid the conclusion that we are living in an age of large information monopolies. Could it be that the free market on the Internet actually tends toward monopolies?.....Internet industries develop pretty much like any other industry that depends on a network: A single firm can dominate the market if the product becomes more valuable to each user as the number of users rises. Such networks have a natural tendency to grow, and that growth leads to dominance.”
More here “In the Grip of the New Monopolists”
In a related article Edmund Conway (now based in Washington) discusses the power of disruptive technologies and the huge take up of the Apple iPad among people many of whom have never bought a laptop before. A hat tip to my colleague Tom Allen for spotting this one.
Time Magazine has listed the iPad as one of its top fifty innovations of 2010 - more here
Barriers to Entry: Cutting it in the USA
The Telegragh today has a piece on our good friend Will King from King of Shaves. KoS have entered into a joint venture with Spectrum Brands Holdings, Inc., owner of Remington branded electrical shaving, grooming and styling products (remember Victor Kiam’s famous ads?) in a bid to establish a stronger foothold in North American markets that have been dominated for decades by Gillette and Wilkinson Sword.
The article is a timely reminder of the entry barriers that exist when seeking to enter overseas markets. From previous experience, Will King has learned that the market dynamics of the USA are decidedly different. To win orders from retail giants Walmart and Target you need scale, heavy marketing spend and reach. It will be fascinating to see how the KoS brand does in the months ahead.
Since Will King created the Original Shaving Oil in 1993, King of Shaves has grown to become the number two ‘shaving software’ brand in the UK, and is the fastest growing brand in its market place. A King of Shaves product is sold every seven seconds
read more...»Start Up Stories - Tony Fernandes of Air Asia
I had the pleasure of meeting Tony Fernandes in February of this year and I follow news of the expansion of Air Asia and related commercial ventures with interest. Here is an interview with him as part of the BBC’s Start Up Stories series.
