Server demand dips as downturn bytes
The seasonal surge in user demand for the Tutor2u blog and other online resources last year caused our rather ancient server to crash leaving the website lying low for a while. So this year we are watching the performance of our new upgraded server with added interest. Elsewhere the recession has caused steep cutbacks in IT investment as businesses scale down their spending on upgrading systems or postpone them until conditions improve.
read more...»Revision - Market Structure and Innovation
Which market conditions are optimal for effective and sustained innovation to occur? This is a question that has vexed economists and business academics for many years. High levels of research and development spending are frequently observed in oligopolistic markets, although this does not always translate itself into a fast pace of innovation.
read more...»Revision: Market Structure, Conduct and Performance
A revision PowerPoint presentation on structure, conduct and performance in markets - designed for A2 micro
Presentation
Market_Structure_Revision.ppt
HMV diversifies into cinemas
Here is a great example of business diversification and growth through joint venture. HMV is entering into a joint venture with cinema chain Curzon Artificial Eye to open a cinema called hmvcurzon above its Wimbledon store.
read more...»Thomson-Reuters and Bloomberg Duopoly
The Lex column in the FT today considers the outlook for the news wire services run by Thomson-Reuters and Bloomberg. I couldn’t function without my EcoWin service - it is invaluable to be able to call up data on virtually anything when teaching in the classroom or when preparing an article or student handout. The market for news wire services is basically an oliogpoly. And economies of scale really matter in this industry given the dominance of fixed costs in providing real time information services to subscribers. How will Bloomberg and Thomson-Reuters be affected by the downturn in the financial services industry?
Bloomberg has reported a fall in the number of Bloomberg terminal subscriptions - they are down by 2.5% from a subscriber base estimated at 300,000. Terminal sales account for about 85 per cent of Bloomberg’s revenues and each can be rented for $1600 a month!
In a world of great financial and economic uncertainty and incredibly heavy newsflow one might expect the demand for news wire services to be fairly recession resistant. But the collapse of many hedge funds and steep cutbacks in employment in other areas of financial services is having a negative effect on both news information companies. Is a price war in the cost of renting a terminal imminent? Or will the two giants continue to compete in non-price terms? The latter is more likely - just recently Bloomberg announced it has added Associated Press to its service - offering yet more breaking news for subscribers!
Q&A: Why do cartels often collapse?
Recent business history both here in the UK and in international markets is littered with examples of cartel-behaviour by businesses that seem to have come unstuck. Just type price-fixing into Google news and see what comes up! Even on the day I am writing this blog answer, the FT reports that three cargo airlines have agreed to pay fines totalling $214m for their roles in a global conspiracy to fix prices for air freight. Bloomberg reports that a former sales executive at Hitachi Displays Ltd. has been charged with participating in a global conspiracy to fix prices for liquid crystal displays sold to Dell Inc. And in Ireland, a former director of a Dublin car company has been given a 15-month suspended prison sentence and fined €160,000 after pleading guilty to charges of price-fixing.
read more...»Bus oligopoly under scrutiny
The Office of Fair Trading has announced an investigation into the alleged lack of competition in local bus services. Years after the deregulation of bus services, the market has become concentrated in the hands of just a few main operators. Announcing the launch of a review, the OFT said that “This sector has become increasingly concentrated by takeovers, with nearly two-thirds of services now controlled by five large operators. The study will consider whether concentration in the market has a positive or negative impact on the prices consumers pay and the services they receive, and whether or not there is competition between operators bidding for tendered services.”
The five biggest local bus operators are Arriva, First Group, Go Ahead Group, National Express and Stagecoach. Arriva has approximately 20 per cent of the London market under contract to Transport for London. Outside of London Arriva runs more than 5,000 buses and has built up an approximate market share of 15 per cent.
Expect a report to emerge in the autumn about the extent to which the competition authorities may have to intervene to provide greater safeguards against the dimunition of competition in local bus markets where often one firm has emerged as a dominant force. Are consumers’ interests best served by unfettered competition between bus service providers on the road?
Waitrose provides a Welcome Break
What do you use a motorway service area for? A comfort break? Perhaps a chance to check emails or phone ahead to your destination? Perhaps a night’s break before continuing your journey - or maybe a chance to avoid the supermarket queues at home and pick up some groceries on the way home?
Waitrose is entering into a franchise agreement with Welcome Break to open up food stores in some of its motorway service stations. It is another sign of how food retailers are looking to extend their reach away from the superstore and also how businesses are responding to our changing needs and wants when we set off on long haul drives on our major roads.
read more...»Q&A: In what type of market does the iPod operate in?
Q&A: iPod and Market Structure: In what type of market does the iPod operate in?
In this answer I will assume that we are discussing the market for personal digital audio and video media players. Keep in mind that music can be downloaded (legally and illegally) in numerous ways such as the iPod, smart phones and standard laptops.
read more...»Blade Runner
Changing your razor blade is no soft touch decision. After years of teaching my old three-blader to recognise and traverse the craggy features of my cheeks and jaw (I prefer to shave without a mirror) I took the plunge last week and swapped for one of the new Azor razors from King of Shaves. The Azor is the first British designed, engineered and manufactured razor in over a century and it was launched last June in a bid to win a share of the £315m annual sales of razors in the UK alone in a duopolistic market dominated by Gillette and Wilkinson Sword.
read more...»Chasing the petrol-pound - the supermarket price war
Under the threat of scrutiny from the Office of Fair Trading and conscious that in a recession, consumers are prepared to travel further in search of value for money - the price war at the pumps between the leading supermarkets shows few signs of ebbing. Asda and WM Morrisons set the latest ball rolling this week and Tesco and Sainsbury have fallen into line in quick order. It is difficult to work out who - if anyone - is assuming the mantle of price leader in this battle for fuel sales.
Crude oil prices are back where they were this time last year and fuel prices are pretty close to the levels seen in the Fall of 2007. For all of the talk of petrol and diesel prices taking weeks to change in response to the fluctuating price of crude, this market seems to be adjusting pretty swiftly. This can not be said for electricity and gas prices - Robert Peston picks up on this in his blog today.
EU goes bananas over price rigging
It has taken over three years of intensive investigations. But the EU has decided that the time is now ripe to announce heavy fines for a well-known bunch of banana growers guilty of operating a price-fixing cartel in eight European Union countries.
Chiquita Brands and Dole Food were among the producers found guilty of rigging import prices into a market worth around Euro 3 billion annually. Because of their ‘whistle-blowing’ role in outing the cartel, Chiquita have been given immunity from the fines. In contrast, Dole faces a liability of over Euro 45m for its key role in the price-fixing agreement. Del Monte is also involved and has been fined $19.8 million, but Fyffes was not part of the anti-trust investigation. Tough EU competition laws now allow businesses who suffered commercial damage from the banana price fixing cartel to take legal action against the growers / importers.
BlackBerry raises the bar (again)
It is the classic contestable market - BlackBerry is locked into a perpetual battle with the likes of the iPhone for the hearts, minds and wallets of corporate and consumer users. The Indy today reports on the release of the new Blackberry Storm - hang the credit crunch, forget the implosion in the real economy, lets get out there and try it!
Nokia cuts prices as battle for market share in handsets hots up
Nokia has increased its market share for handsets from 38.4% to 40.9% according to second quarter data from CCS Insight and reported in an article in the Times yesterday. The intense battle for market share is resulting in periodic price wars and the economic downturn seems to have precipitated another one - Nokia is reducing prices by up to 10% .
The mobile phone handset industry is best described as an oligopoly. In the second quarter of 2008 the leading five manufacturers accounted for 83% of world sales.
Nokia 40.9
Samsung 15.3
Motorola 9.4
LG 9.3
Sony Ericsson 8.2
The global mobile phone market grew by 12.3 per cent year-on-year in the first half of 2008 with shipments reaching 584 million units - the economies of large scale production in this kind of industry must be absolutely enormous. The power of the brand and the impact of achieving lower costs per unit are two of the key competitive drivers that impact on consumer prefereces.
Nintendo poised to overtake Sony in the consoles battle
Sony has released results showing that it has sold 14.4 million PS3 machines worldwide since it went on sale late 2006 but this might not be enough to prevent Nintendo from overtaking them as the world’s biggest seller of computer games consoles in 2008. This classic oligopolistic market continues to see vigorous price and non-price competition between the three dominant players - Sony, Nintendo and Microsoft. This week - all ten of the top UK selling computer games are either for the Wii or Nintendo DS and five of the chart toppers are produced by Nintendo themselves. The company has sold more than 10 million Wii consoles and 70 million DS handheld machines worldwide.
More background available here “Consoles look to hit their stride”
Tobacco price fixing
John Fingleton’s tenure at the competition watchdog the Office of Fair Trading has coincided with some huge fines for price collusion within oligopolistics markets and yesterday came one of the biggest with a tobacco manufacturer and five retailers agreeing to pay the biggest collective penalty yet imposed for price-rigging after admitting their role in efforts to boost the cost of cigarettes.The six companies agreed to pay £132m to settle the charges with Gallaher, one of two tobacco manufacturers involved in the case, shouldering the lion’s share of the burden after agreeing to pay £93m.The Times reports that “The six companies fined made prompt admissions of illicit competition practices in return for lenient fines.” - another example of game theory and the prisoners dilemma in action!
Coverage here
BBC news: Six firms fined in tobacco probe
The Telegraph: OFT’s hefty fines for tobacco price fixing
The Times: Supermarkets and tobacco firm are fined £173m for price fixing
Office of Fair Trading press release
There is a recent profile of John Fingleton here in the Times
Education (AQA), Education (Edexcel), Education (OCR)
After finishing my A levels in Edexcel French, OCR Economics and OCR Further Maths yesterday, I had a discussion with a friend (thanks Ben!) about why it was that our particular qualification is getting an increasingly bad name for itself. The common consensus is that the International Baccalaureate, with its six subjects and an extended essay, is a much more rigorous and challenging qualification. September 2008 sees the launch of the Cambridge Pre-U, another qualification that aims to compete against the already tainted brand of the traditional A level (bet that’s the first time you’ve heard that phrase without Labour being in the sentence… 
Oh wait.), and Imperial has just announced its plans to set its own entrance exams, its rector Sir Richard Sykes claiming that “We can’t rely on A levels any more.” In this article I’d like to explore how competition between A level exam boards breeds not excellence, but mediocrity, and I’m going to point the finger at a lesser-blamed culprit: you.
“Benign”, eh?
Today the Office of Fair Trading has filed a press release accusing 112 construction companies of price-fixing. Estimated to be hundreds of millions of pounds, this will dwarf the previous record fine of £121.5m on BA last year and the £116m penalty on supermarket milk price-fixing. Some of the biggest names such as Balfour Beatty and Carillion have been accused, and shares in the construction sector generally dipped in London today.
read more...»Will they, won’t they?
The Delta-Northwest farce finally appears to be drawing to a close. The two have been discussing a merger for over two months now, being plagued with seniority list integration issues. Today was the closest the deal has ever reached, with a possible announcement about its completion as early as tomorrow. If given the go-ahead, this would create the world’s largest airline. This has both United and Continental quaking in their boots, with talks of a possible merger between the two. Both Delta and Northwest shares rose over the day.
read more...»A new era for air travel
Today marks a momentous triumph for competition over protectionism. Anti-competitive practices dating back to the 1944 Chicago Convention will finally be scrapped for the new Open Skies agreement between the European Union and the United States. Currently, only British Airways, Virgin Atlantic, United and American Airlines are legally allowed to offer direct flights from Heathrow Airport to the US. But after the deregulations of transatlantic air travel, the market will at last be open to competition from challengers.
read more...»Search engine market heads towards duopoly
The internet search engine market is moving inexorably towards a duopoly and that process has been accelerated this week with the news that Ask (formerly Ask Jeeves) has abandoned plans to compete with Google and Yahoo and switch instead towards providing search advice for its growing band of female internet devotees.
read more...»Dynamic Efficiency and Innovation
Dynamic efficiency is an increasingly important aspect when we consider the welfare consequences of market structures. I regard dynamic efficiency as form of efficiency that occurs over time in the sense that a market should meet our changing needs and wants as time progresses.
Naturally we expect to pay a premium price for innovative products that enhance the ‘customer experience’ or which deliver something else better than the ‘industry standard.’ But at the heart of this is the impact of process and product innovation by suppliers in the market place.
read more...»
