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...»
A revised presentation on entry barriers in markets is available here in three formatsread more...»
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...»
This updated revision presentation is designed to help students preparing for markets-related topics on A2 economics specifications.read more...»
Who gains and who loses out from persistent and pervasive price targeting by businesses? To what extent does price discrimination help to achieve an efficient allocation of resources? There are many arguments on both sides of the coin – indeed the impact of price discrimination on welfare seems bound to be ambiguous.read more...»
Price discrimination occurs when a business charges a different price to different groups of consumers for the same good or service, for reasons not associated with costs.read more...»
This revision note looks at the growth of businesses - we will be adding fresh links at the foot of this blog to recent blog entries on business growth articles and news storiesread more...»
Here is a selection of this week’s TV (and a bit of radio) that seems to have some good economics content and might provide a welcome, yet useful, break from revision.
Sunday 15th May: BBC4 8pm, ‘The Secret Life of the National Grid’ - could be worth a look in terms of economies of scale, network externalities, economic growth and the importance of infrastructure
Sunday 15th May: Radio 4 8pm, ‘The Bankers and the Bottom Billion’ - possibly some useful bits in terms of development economics
Monday 16th May: BBC1 8.30pm, ‘Panorama’ - this week’s investigative documentary looks at the illegal trade in waste electronic products following the introduction of regulations governing how we can dispose of such things - probably very good in terms of analysing a type of government failure
Monday 16th May: BBC1 9pm, ‘The Street That Cut Everything’ - looks rather entertaining as well as providing a bit of an insight into topics such as government spending on public goods and goods that generate positive externalities
Monday 16th May: BBC4 9pm, ‘The Golden Age of Canals’ - whilst at first glance this may not seem too appealing, I suspect there are some interesting nuggets in terms of networks and infrastructure spending, as well as a look at why canals fell into obsolence due to the invention of the combustion engine (some creative destruction here!)
Tuesday 17th May: BBC3 9pm, ‘Secrets of the Superbrands: Technology’ - a good look at how monopolies put up strategic barriers to entry in terms of branding and smart use of technology to achieve consumer loyalty
Thursday 19th May: ITV1 7.30pm, ‘The True Cost of a Car’ - a look at the impact on motorists of rising fuel prices and insurance premiums, which will bring in cross-elasticity of demand in a roundabout way
Thursday 19th May: Radio 4, 8pm, ‘The Report’ - a closer look at the operation of supermarkets and why there is opposition to their expansion (useful for looking at the impact of rising market power)
Friday 20th May: BBC2 7pm, ‘Wind Farm Wars’ - probably very useful for those sitting AS Unit 1 this summer in terms of negative and positive externalities of production, and the ins and outs of cost-benefit analysis
Hopefully there’s some light relief in there for everyone! All of the BBC programmes will be available on iPlayer for several days after they’ve been broadcast.
Here is a revision idea. Take a broad topic - in this case the economics of monopoly - and get students to enter items for an A to Z on that topic. Here is an A-Z relating to monopoly, I am sure we have missed out lots of ideas, can you add some in? If so please leave a comment!read more...»
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
Here are some links to recent news stories on competition and monopoly issues in the UK and the EU Single Marketread more...»
Has the growth and development of the European Union single market and the Euro accelerated a process of price convergence within the EU? Price convergence means that the gap in prices for the same good or service has come down and in theory, having one currency and an open market ought to bring down the extent of price variations. Our Timetric chart below tracks what has been happening to the price convergence indicator. A fall in the measure indicates a coming-together of average prices.read more...»
Designed by and designed for women, L. is among the first woman-run condom enterprise that sells all natural male condoms for women. Inspired by work in Africa where nine out of 10 African countries goes without condom supplies for more than two months here is an interesting example of an attempt to break into the dominant monopoly of the major condom manufacturers such as Durex.
Here is a fantastic piece from John Cassidy - author of Why Markets Fail - a simply terrific investigation of the different ways that we can measure the rate of return for different business activities. Apple employees earn a lot less than Goldmans’, despite generating a much higher return.
Martin Hickman’s Consuming Issues column in the Independent this weekend has a piece on some of the tactics used by retailers to take commercial advantage of many of our behavioural biases.
These pricing tactics include:read more...»
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…
Obviously, Facebook is not a monopoly in the pure sense - there are, of course, other websites on the internet! However, students studying A2 Economics will be well aware that the working definition of a monopoly, as used by the Competition Commission, is a firm with more than 25% market share.
Imagine my surprise, then, when I read this short article from the Boy Genius forum. According to a recent report filed by Experian’s Hitwise group regarding internet usage in the US during the week ending 13th November, one of every four page views took place on facebook.com.
This could spark an interesting discussion on whether the 25% definition is necessarily a useful benchmark in all markets. Does Facebook have any degree of control over the internet?
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
I have started using Google docs as a tool for collaborative work between my students. It is early days yet but my aim is to set a discussion question once a week for each group to contribute to, I will credit students for the input they have having reflected on the edit history for the document. Here is our first attempt.
The expansion of Google and the economics behind their growth strategy offers interesting avenues for study as part of your A2 micro course. This document asks a simple question “Which industry is Google in?” The answer(s) will reveal much about the nature and ambition of Google as a business and the economics of contestable markets and monopolistic markets. The full document can be downloaded below as a pdf file.read more...»
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 secondsread more...»
The retail market for the latest TVs, gaming consoles, electronics and other gadgets has just become more contestable!
Best Buy the giant US electrical retailer has announced that it is planning to launch an entry into the retail market for electrical appliances in a move that will potentially shake up the consumer electronics market which has been populated and dominated for many years by high street regulars such as Currys and Dixons, more recently by Amazon and Play.com. Best Buy’s huge economies of scale have made it relatively easy to enter the UK market. They bought a 50 per cent stake in Carphone Warehouse last year and they have already opened five new “bricks and mortar” stores in Essex, Birmingham, Southampton and Liverpool in the past few months.
Their next move is to establish an online presence in the UK and it seems this will be up and running in time for the lucrative Christmas buying period. More here in this article from the Independent.
Just Giving has become the market leader in web sites offering charities a platform for raising money online. By some estimates they take over eighty per cent of total charitable giving done online. But there are complaints that Just Giving is abusing their dominant position by charging higher fees that other comparable sites for taking donations - they claim 5pence in every £1. Nigel Cassidy provides this brief video report. A hat tip to Gareth Williams for spotting it. Gareth writes on his Twitter account “Just Giving, an example of abuse of market power or do the consumers benefit from extra dynamic efficiency of a monopoly?”
Our revised presentation on monopoly price and output is available in three formatsread more...»
It is already common knowledge that Google is by far the biggest player in the internet search market (with an 83% share globally at last count). In fact, their search is one of the few products that are so ubiquitous that its name has become a verb. Think about it - would you naturally say “search for it” or “Google it”? Surely, this is the ultimate form of monopoly power.
However, many will be less aware of the web giant’s rapid growth in other markets, namely those for internet browsers and smartphone operating systems. Here are links to two articles from the blog Engadget which show how Google’s innovation and rapid product development have made them increasingly competitive in markets that until recently were dominated by other large firms. This could be good as a starter or mid lesson stimulus for a lesson on competition, barriers to entry or even growth strategies of firms.
Incidentally, I am one of the many who have bought into the Google franchise and use both the Chrome browser and an Android phone. I have found both excellent so far!
Whenever you are studying or teaching the external growth of a business, head over to Wikipedia and check out the list of corporate acquisitions that cash-rich Google has made in recent times. It is an enormous list and one that extends with every passing year. Business Insider focuses on Google in their daily chart
This supporting article considers some of the motives behind the boom in acquisitions - not least the desire to attract experts into markets where Google has no substantial track record.
A further article here takes you through the details of each acquisition - trying to work out where each investment fits into Google’s growth strategy
Cross posting from the Business Studies Blog
If you ever need to point students to some real-life examples of technological innovation in action, use this new list produced by the Guardian. Some great case studies here of how technology can be used to identify new value-added services for consumers & businesses, as well as challenge the existing business models of market leaders.
The underlying theme seems to be that technology is enabling these businesses to overcome barriers to entry in a market and quickly become quite disruptive to the established operators. Not all of these businesses will survive and thrive, but some (e.g. Spotify) are already household names and others may soon achieve that status.
Google has 65% of the global web search market and a dominating presence across wide acres of the internet. Last week they launched Google Instant which produces web search results as you type and claims to lower the average time spent searching for a specific site or resource. Rory Cellen-Jones provides some of the commercial background behind this innovation in a BBC News 24 interview - he makes the point that search is the only activity that actually makes Google much money so they simply have to keep expanding what is possible to refine and speed up their search engine technologies. This is a good example of an improvement in dynamic efficiency in the market - to the wider benefit of millions of web users.
Joseph Schumpeter would be proud. The creative side of his destruction is still going strong - Samsung have released a “tab” to rival Apple’s iPad - but is it any good or is it just wasteful expenditure recreating the same? On “paper” it seems better with more capabilities than the iPad… but brand loyalty can be a big attractor…
See the video clip comparison here.
Here is a link to a recent research report from the Office of Fair Trading. It provides a very readable introduction to what behavioural economics is and then asks whether this emerging area of economic thinking can have useful applications in the shaping and handling of competition policy. Great for teachers who want to introduce some behavioural aspects into their teaching of competition policy issues in the UK and in other countries.
When a friend’s Facebook status mentioned a website offering loans for a TV at 2689% APR, I was intrigued. It sounds astronomically high, doesn’t it? – The answer, as always in Economics, is that “...well it depends…”
Firstly, APR stands for annual percentage rate and is the interest payable on the amount borrowed and other charges expressed as an annual rate of charge.
Secondly, the website in question is called Wonga.com - “Wonga provides small and super-flexible loans around the clock. We’re here to help solve urgent and short term cash flow problems.
Wonga’s business model is based on lending money (maximum £400) for short durations (maximum 30 days).read more...»