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The coalition government has announced plans to privatise the Royal Mail by selling a majority stake in the business using an initial public offering (IPO) which could value it at more than £3 billion. The business has had a long term struggle to become more efficient and profitable in recent years - it faces a number of significant competitive challenges from rival postal businesses and from new technologies and a decline in the volume of letters sent.
According to Business Secretary Vince Cable
"The government's decision on the sale is practical, it is logical, it is a commercial decision designed to put Royal Mail's future on a long-term sustainable business. It is consistent with developments elsewhere in Europe where privatized operators in Austria, Germany and Belgium produce profit margins far higher than the Royal Mail but have continued to provide high-quality and expanding services."
Trade union leaders oppose the plans fearing that a move to the private sector will cost jobs and that the commitment to a universal postal service will eventually end.
On or around the point of IPO, Government will transfer 10% of its shares in Royal Mail to an employee share scheme designed to boost incentives for those who work for the business.read more...»
The Competition Commission is to launch a full-scale inquiry into the operation of payday loan companies. In the past three years, the payday loan industry has expanded rapidly from £90m to around £2.2bn - a reflection of the increasing financialisation of the British economy. The review will take over a year to complete and a range of actions are possible including caps on the sky-high interest rates that are charged on loans.
Average loan interest rates charged by Wonga, the UK’s largest payday lender, are now 5,853 per cent (annual percentage rate). For more on this potentially important competition inquiry - Payday loans industry to face competition inquiry (BBC news)
The political controversy over corporate tax avoidance from many of the world's biggest transnational businesses is unlikely to go away anytime soon. Google, Amazon and Starbucks and Apple have all come under intense scrutiny.
Network Rail is a state owned business whose debts are backed up by government. Network Rail owns and operates the UK's railway infrastructure. Their stated objective is "Building a safer, smarter, bigger, greener network – every day."
It is achieving rising
revenues but remains heavily reliant on state subsidy -
there is plenty of applied business economics in this article if you read through. It runs a network
creaking under capacity constraints - passenger numbers are growing well ahead of forecast. 529 million more passenger journeys per year have been completed on time compared to 2002 but Network Rail faces problems over failing to meet tougher punctuality targets.
Mainly designed for A2 micro students taking exams in business economicsread more...»
This revision presentation looks at aspects of intervention in utility industries in the UKread more...»
A short streamed revision presentation of examples of monopsony power in marketsread more...»
A streamed revision presentation on aspects of market power and business pricing in marketsread more...»
Some examples here of recent merger and acquisition activity - students might want to consider the types of business integration on display in these examples:read more...»
This 10-question revision quiz focuses on model of monopoly.read more...»
I really look forward to receiving my daily email from the Farnham Street Blog - over the last couple of years it has been a continuous stream of interesting ideas and links to thinking in business and behavioural economics. Today's article focused on the continued popularity of Lego bricks despite the loss of patents. Price anchoring, brilliant marketing, consumer perception, hard wiring into our brains the contextual value of a product ... the result is low price elasticity and the ability to raise price nearly every year! Here is the link
Tragedy struck at a mid-week game played during the holiday season in Football League Division Two. The pies ran out in the home supporters’ bar. The incident may seem trivial to those not involved. Yet it illustrates some important themes in economics, which have even gained their inventors the Nobel Prize.read more...»
This Scoop It Board is curated daily to add new content and commentary on market and industry news relevant to A2 micro unit 3 students.read more...»
Here is my current Business Economics glossary designed for the EdExcel unit 3 economics paperread more...»
Here is a streamed version of a revision presentation on market power and pricing suitable for Unit 3 micro studentsread more...»
Matt Smith has been curating a Scoop-It collection of news stories connected to unit 3 microeconomics and specifically the economics of market structures. Click here to view it.
The #econ3 hashtag is a great way for A2 students to follow a growing number of teachers who post ideas, links and advice on Twitter. Likewise use #econ4 for tweets focused on A2 macroeconomics.
I was told off this week by my students for using McDonald's as an example to illustrate my point yet again. In fact it was the second week on the trot that I was reprimanded as they told me previously that I was always peppering my conversation with Latin phrases "'cos it makes you sound more clever."
"No I don't," I replied - I've told my students a million times not to exaggerate. The offending example came as I was attempting to explain how fatty foods (especially those from the exalted temple of the Golden Arches) were a demerit good. I thought about it for a little while and realised that two weeks ago I'd told them about the use of 'stars' to motivate McDonald's staff and their extensive training programmes when we discussed labour productivity. I'd also mentioned them when we discussed possible issues relating to economies of scale and the fact that a homogenised world can lead to less choice (a weak argument in their view - a McDonald's in every town sounded like a wonderful idea) and discussed the use of persuasive advertising as an example of non-price competition. They were right, I seemed to be talking about McDonald's all the time - and I'm a vegetarian!
"Mea culpa," I confessed.read more...»
Assessment failures were 'clearly responsibility of officials and not ministers', Philip Rutnam tells former transport secretary
If the Department of Transport is too incompetent to run a supervised franchised system, how viable is the alternative of a fully nationalised system?
Every cloud has a silver lining! News reports out today confirmed that the original decision to award the next 15 year franchise of the West Coast Rail line to FirstGroup instead of the incumbent Virgin Rail has been rescinded and the bidding process re-opened at a potential wasted cost of £40 million (by the way, have they fixed that leaky roof at your school yet?). This may seem like a fiasco to train users and the general public alike but to us Economics teachers it's a super example of government failing to intervene correctly in a market.read more...»
There was a time when if you asked students for an example of a firm with monopolistic tendencies more than 25% of them would give Microsoft as their answer. Those days seemed a thing of the past as first Apple and then the more recent arrival of Google's Android platform suggested we were going tired of watching Bill Gate's egg timer. However, it would seem that the arrival of Windows 8 has brought the good old bad old days of market domination back.read more...»
The milk industry is in the news once again with some dairy farmers threatening to go on strike and limit milk supplies in protest at cuts in the wholesale price of milk offered to them by the major milk processing businesses. I have put together some video resources available from different web sources and built them into a Storify slideshow, as more videos are added the slideshow will be updated automatically.
The English water and sewerage industry was privatised in 1989 and since then household and business consumers have received water services from a regional monopoly business. Companies such as Thames Water or Severn Trent are vertically integrated, water companies, which provide a ‘source to tap’ service: obtaining water from source through abstraction, treating it to an appropriate standard, and providing it to customers’ taps via company-owned infrastructure. Only very large business customers are able to choose their supplier.
In Wales, Glas Cymru is a single purpose water and sewerage company with no shareholders run solely for the benefit of customers. Scotland and Northern Ireland have retained the state-owned model.
Post privatisation, an industry regulator OFWAT was created. Like other regulators OFWAT has a number of roles including the aims of promoting the public interest and increasing cost effectiveness of the water and sewerage suppliers. The water industry has been subject to price controls over the last twenty three years with each price-control regime lasting for a period of five years. The current price control lasts until 2015.read more...»
The pay-day loan boom is a symptom of more than three decades of financialization in the UK economy. Households and also some businesses are using the loans made available by companies such as Wonga. But borrowing from them involves astronomical rates of interest on an annualised percentage basis. In this clip we see how pay day loan businesses are becoming an ever more frequent sight on our high streets - but are tehey targeting the poorest and most vulnerable in society? Should regulators get tougher on them? Are they a sign of these difficult times?read more...»
BMW have been fined SFr156m ($163m) by Swiss Competition Authorities for restricting the supply of BMW and MINI cars to Swiss purchasers.read more...»
Here is a revision download containing some key theory diagrams and accompanying explanation for topics in business economics / theory of the firm / market structures.read more...»
Here is the sub-heading from the report in today’s Daily Telegraph: “Royal Mail is limiting the number of stamps it supplies to retailers now to ensure it profits from record price rises later this month.” The report goes on “Royal Mail confirmed on Thursday that it had imposed a cap on the number of stamps every shop could buy. Retailers said it was refusing to restock them when they exceeded their allocation.” Ian Murray, the shadow postal affairs minister, says that he will be writing to regulator Ofcom about this rationing of supplies.read more...»
Here is a revision presentation focusing on different entry and exit barriers in imperfectly competitive markets.
* Block potential entrants from making a profit
* Protect the monopoly power of existing firms
* Maintain supernormal profits in the long run
* Barriers to entry make a market less contestable
This is an updated revision presentation on price discrimination in markets designed for A2 micro students.read more...»
Show and explain how a monopolist maximises profit in a marketread more...»
Analyse the equilibrium price and output equilibrium under monopoly and perfect competition. Show and explain the deadweight welfare loss under monopoly and consider when a monopoly might be more productively efficient than a competitive market.read more...»
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...»
It has been a bit chilly in the UK for the last few days, but nothing compared to the temperatures as low as -35 which have hit parts of central and eastern Europe. Of course, they are used to far colder winters than us, and have different ways of dealing with the weather, but reliance on gas supplies from Russia for the majority of their heating fuel leaves countries including Bulgaria, Serbia and Bosnia vulnerable to disruption in that supply.read more...»
The UK Competition Commission has published an important report into the market structure of local and regional bus services in the UK, twenty five years after the industry was deregulated and largely privatised. Coverage of the report can be found here (BBC news).
Largely as a result of a long-term process of consolidation through merger and acquisition, the UK bus industry is found to be highly concentrated with five businesses dominating the sector even though more than 1,200 businesses provides services.read more...»
This excellent news piece from Ben Cohen at Channel 4 looks at the increasingly aggressive patent war being fought by the manufacturers of the world’s leading mobile phone and tablet devices - the most profitable products in the digital economy. “Where once the giants (Google and Apple) competed on features, they now compete on patents.”
The news feature looks in particular at the intellectual property surrounding the slide-screen technology used by millions to unlock a device. Apple claims the IP to this but a video tracked back to twenty years ago suggests that developers were already thinking of something remarkably similar long before the iPhone came into existence. Can the makers of Android defend legal claims from Apple that their IP has been infringed? And who will end up paying for the enormous legal fees and possible extra licencing costs?
A seasonal look at the methods of growth for firms, covering organic growth and the sources of external growth.read more...»
I tweeted earlier on today asking economics teaching colleagues what examples they like to use when teaching the topic of price discrimination under conditions of monopoly / imperfect competition. Thank you to everyone who contributed!
Seth Godin’s Domino Project is an attempt to re-fashion the way in which e-books are published, sold and priced. This blog is particularly interesting for teachers and students who consider different forms of price discrimination. It proposes (at least) three different price tiers:
$1.99 ebooks - a clearing price for the majority of e-books
$5 ebooks. This is the price for bestsellers, hot titles and academic titles required by courses
$10 - $20 ebooks. This is the price you will pay to get the book first, to get it fast, to get it before everyone else
What do you think? How do you see e-book pricing tactics evolving as the market grows? The UK Office of Fair Trading is currently investigating the market for e-books in the UK amid allegations of price fixing / collusion by several leading publishers. You can access the OFT investigation using this link.
Guardian (August 2011): Apple and major publishers face lawsuit over ebook ‘price fixing’
By way of background - new research has found that the average e-book price of front-list e-books across the world was €10.50 net of taxes. The average price of UK frontlist e-books was €10.80, €1.50 more than equivalent US titles, but less than those in Germany, Spain and France.
The scale of the legal battles between different businesses in the mobile industry might just be unprecedented. This nifty graphic from the iDownload blog provides an overview of the complex web of litigation - a lawyer’s dream! But if Samsung succeed in delaying the release of the iPhone5 then what might become of their reputation with millions of consumers worldwide? An Indian Summer hat tip to Graham Carter for flagging up this visual.
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...»
Barriers to entry are designed to block potential entrants from entering a market profitably. They seek to protect the power of existing firms and maintain supernormal profits and increase producer surplus. These barriers have the effect of making a market less contestable - they are also important because they determine the extent to which well-established firms can price above marginal and average cost in the long run.
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...»