Unit 3 Micro: Samsung and LG fined for price fixing
As A2 microeconomists approach their Unit 3 exam, they need to make sure they have good examples to support their analytical theory and should therefore be interested in the news from South Korea where the antitrust regulator has fined Samsung Electronics and LG Electronics for conspiring to fix the prices of some appliances.
The regulator said the two firms held secret meetings in 2008 and 2009 to agree on prices for washing machines, flat-panel TVs and laptop computers and has fined Samsung 25.8bn won, while LG was fined 18.8bn won. A nice relevant example of collusion, price fixing and the government’s response to this anti-competitive behaviour
Newsnight on rebalancing the UK economy
Last night’s edition of Newsnight should be required viewing for all AS and A level economists - and it is a huge shame that it is only available on i-player for another 7 days. Introduced on the shock news that even Tesco is vulnerable to the downturn, it included reports from Andrew Verity looking at whether the British economy will ever wean itself off shopping and the City, and an excellent (and all-female!) discussion including Deborah Meaden and the FT’s Gillian Tett. Try challenging your students to watch and listen to this while noting down every aspect of the syllabus which is mentioned or referred to - that will keep them busy!
There was also a debate between Employment Minister Chris Grayling and disability campaigner Sue Marsh about the government’s welfare reforms, defeated in the House of Lords the night before, and finally Tokyo correspondent Roland Buerk looking at Japanese economic stagnation of the late 1980s and 90s, to consider whether it was a “lost decade” and what could be learnt from it.
Unit 4 Macro: Competitive Advantage in Trade (Some Videos)
Here is a selection of short video clips that I use when teaching competitive advantage in markets and when introducing the factors that determine the competitiveness of UK producers in global markets. The focus here is on the UK economy but I will add some more videos to the blog as I work my way through this teaching topic.
read more...»Unit 3 Micro: Is Facebook’s Social Network Dominance Eroding?
There is a wealth of interesting market share data available from the latest edition of Experian Hitwise, the regular analysis of changing activity across different social networks. The big winner in the latest figures appears to be You Tube - which according to Experian had its biggest ever month of traffic as 606 million UK Internet visits went to the website in December 2011. YouTube now accounts for 1 in every 4 visits to a social network in the UK and 1 in every 30 visits online.
Facebook’s share of visits to social networks has declined from 58% in December 2010 to 51% in December 2011. Does this tally with your own experience? Twitter’s share remains below 3% and Google + doesnt even make the top ten of social networks at the moment. More here from the Daily Telegraph. Facebook’s share of UK social networking declines
Unit 1 Micro: Capital used to Build Cross Rail
The tunnelling equipment involved in CrossRail - Europe’s biggest civil construction project - is immense in every way! This BBC news video of the earth cutting machinery is a brilliant visual to use when teaching economies of scale or introducing the concept of physical capital! The machinery is made in Germany naturally!
Unit 4 Macro: Does Manufacturing Matter?
Vicky Pryce FRSA has a new article on the economic significance of manufacturing industry for UK economic renewal. It is available here from the January 2012 edition of the RSA Journal. In a related article Sir Christopher Frayling FRSA discusses the rise of the Maker Movement.
Back in November 2011 Channel 4 news ran a special on the future for UK manufacturing here is a link to a related video
Unit 2 Macro: Factors Driving Business Investment
Profit-seeking businesses will go ahead with an investment if they believe that it will - over its projected lifetime - yield a real rate of return greater than if the money had been invested in the next best alternative way. Opportunity cost is a useful idea to use here. Private sector businesses usually focus on these objectives when investing in new capital inputs:
read more...»Unit 1 Micro: Low Cost Airlines Beat the Recession
The global financial and economic crisis has created many problems for airlines - falling business and 1st class passenger revenues, increased insurance costs, problems in getting loan finance, volatile exchange rate and the challenges of steep increases in aviation fuel prices to name just a few. We could also add the shockwaves from the spring 2011 Japanese earthquake and tsunami, the Arab Spring and a decline in tourism, and the steadily deteriorating global economic outlook - with the Euro Zone crisis threatening a second recession for Western Europe.
But discount airlines - carriers that offer no-frills and charge plenty for extras on top of low basic fares - seem to have fared pretty well despite the turbulent conditions. Many passengers now appear willing to sacrifice luxury for cheaper flights and there are plenty of news stories of low-cost airlines in Europe, Asia and Africa who are announcing expanded route maps for 2012 and beyond.
What economic factors help explain the continued expansion of low-cost airline carriers?
read more...»Unit 1 Micro: Malfunction in In-Race Betting Market
Bet Fair has built up an enviable reputation for running an efficient platform for in-race betting online. The platform gives punters the chance both to lay odds on a race and also to take a standard gamble on the result and the technology allows betting before and during the race. But events last week in Ireland have dealt a blow to the standing and reputation of the business as this Channel 4 news video amply demonstrates.
read more...»Business People in the News Quiz - 2011 Edition
Here is a ten question picture quiz on some of the personalities who have made the business news headline during 2011. How many can you get first time? When you get the questions right - how fast can you speed down the powerboat river?
read more...»2012 - Carnage on the High Street
There are many retail industry experts forecasting that the early months of 2012 might be tough for some struggling retailers. We will keep this blog post updated on a regular basis as news of some high profile retail failures comes through. And we will link to media coverage of some of the attempts to restructure retailers under the threat of closure.
read more...»Regulatory Capture at HMRC?
Is the story of HMRCs failure to collect the right amount of tax from some big businesses an example of regulatory capture? In the current example, the Public Accounts Committee has said that HM Revenue and Customs enjoyed an “unduly cosy” relationship with major companies, and their procedures have allowed rules to be ‘bent’ so that up to £25bn tax has been underpaid. Regulatory capture (an example of government failure) is what happens when regulated industries are able to gain influence over their regulator, so that instead of serving the public interest, the regulator actually supports the interest of the industry concerned. In this case, there does not seem to be one specific industry concerned (although Goldman Sachs’s underpayment of something between £8mn and £20mn comes in for particular criticism); however the situation does seem to meet the requirements defined by the Economist as “Gamekeeper turns poacher or, at least, helps poacher”.
More on the story here:
Taxman slammed over ‘cosy’ business relations
Goldman Sachs tax deal faces UK legal challenge
Unit 3 Micro: Oligopoly and Duopoly in Bus Markets
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.
The five largest operators (Arriva, FirstGroup, Go-Ahead, National Express and Stagecoach) carry 70 per cent of those passengers. The CC also found that head-to-head competition between operators is un-common and that-on average-the largest operator in an urban area runs 69 per cent of local bus services - effectively a monopoly position.
Unit 3 Micro: Patent Wars- A Touchy Subject for Apple
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?
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The Christmas Tree of Integration
A seasonal look at the methods of growth for firms, covering organic growth and the sources of external growth.
read more...»Unit 1 Micro: Inside a Biscuit Factory
This five minute video is superb for illustrating economies of scale in the production - we take a trip through the United Biscuit factory to see how millions of products are made every day. The commentary is a little simplistic but as a visual aid it is brilliant. A great example to use of capital intensity in production and the nature of supply curves and the elasticity of supply. Here is the link to use
Unit 3 Micro: Hope Bikes - A Commitment to Excellence
Are you into your cycling? The huge expansion of interest in cycling in the UK from road racing through to BMX and mountain-biking has gone hand in hand with the fantastic success of British cyclists on the international stage. 2012 promises to be another strong year for the industry despite difficult economic conditions.
read more...»Unit 4 Macro: Does UK Manufacturing have a Future?
Here are links to two superb short reports on prospects for UK manufacturing as the British economy struggles to escape from recession and sluggish growth forecasts in 2011 and 2012. Both are from Channel 4 News that produced a special on the health of the manufacturing sector - excellent for evaluation and for some applied examples to build into essays. The links appear below
read more...»Unit 2 Macro: Will a Youth Jobs Subsidy Work?
The Coalition Government recently heralded a new scheme designed to address the structural problem of high youth unemployment in the UK economy. Under their “youth contract” plan, employers will be given “wage incentives” worth £2,275 to take on some 160,000 18-to-24-year-olds. But will it have much impact on the problem? The independent Office for Budgetary Responsibility says that the net effect on overall unemployment will be close to zero, because the subsidy incentive will lead to a switch in employment away from older workers.
read more...»Unit 3 Micro: Tacit Collusion in the Supermarket
What do students make of the current price match / big price drop schemes offered by many of the leading food retailers in the UK?
On the surface the brand price match scheme shown in the picture below looks like a good deal for consumers in this time of financial hardship and distress.
But what it this ‘parallel pricing’ serves merely as a form of tacit collusion with prices on a range of products actually higher than they might be without the facade of price comparisons and discount voucher compensation?
Some Practice Interview Questions
Lots of students are preparing for their economics university interviews in the days ahead. Here is a selection of some of the questions I have been firing at my own students recently. There is no particular order of importance and they not designed to replicate what might be asked, they are simply the questions I like to ask to see if students have an understanding and a passion that goes beyond the mundane nature of AS and A2 courses. I usually throw in some logic and quantitative puzzles at the same time for variety!
read more...»Unit 3 Micro: Brand Loyalty in Mobile Phones
Brand loyalty is hugely important in all kinds of industries and markets. The costs of acquiring a new customer vastly outweigh the expense of selling more to existing buyers and most of the mobile phone suppliers in this oligopolistic industry focus an enormous effort in building brand identity and brand loyalty to reduce the rate of customer churn (people who switch brands).
read more...»Unit 3 Micro: Patent Wars might Stifle Innovation
In this six minute piece, Rory Cellan-Jones from the BBC looks at the surge in legal actions concerning alleged patent infringements. Intellectual property lawyers are making huge sums from the trend but small and medium sized enterprises especially in technology spaces might have less scope, freedom and resources to innovate as a result.
AS Macro: The State of British Business
How well is British business coping in the aftermath of recession and during a sluggish recovery? Are there signs of improvement or are there warning signs that the UK business sector is fragile and vulnerable as we head into 2012? Four AS macro students - James Richardson, Ludo Higgin, Joe Landman and Nick Russell collaborated on this excellent piece and searched for some revealing clues about the resilience of British businesses at this crucial stage of the economic cycle.
read more...»Unit 3 Micro: Unilever hit by rising costs
Here is a good example of a global giant in consumer products whose profitability has been affected by external headwinds over which it has little control.
The Anglo-Dutch business Unilever - the world’s second-biggest consumer-goods company – has announced that profitability might fall in 2011 even after it increased prices to offset soaring costs for the commodities used to make its products.
read more...»Unit 3 Micro: Impulses to Change Management Models
It is natural for large parts of our media to be obsessed with tracking the machinations of Greek politics and the frantic attempts by European politicians to shore up the fragile Euro Zone with palliative bailouts and stability funds. But the really interesting and significant discussions in economics and finance are taking place at a microeconomic level. As I reach twenty-five years teaching this fantastic and utterly fascinating subject, each day I am drawn more to the complex wiring of microeconomic decision-making and further from sterile debates about the direction of macro policy and the irrelevance of most of what passes along those dreadful ticker streams on Sky News, CNBC and Bloomberg.
That is why taking time out to listen to programmes such as Global Business, Analysis, The Bottom Line, Hard Talk and many other wonderful outputs from BBC radio provides fresh ideas for the classroom and one’s understanding of new directions in economic thinking.
A few weeks back Peter Day from the BBC met Professor Gary Hamel one of those highly-sought management thinkers who are at least prepared to challenge the conventional wisdom of university lecture halls and business schools. Are we now looking at radical shift in the nature of corporate organisation and behaviour? Will the business landscape look very different in the next few years as new models and strategies emerge post-recession and consumers are compelled to revise their choices? Hamel thinks that there is some important straws in the wind and Peter Day teased some of them out in a lively thirty-minute discussion.
read more...»Unit 4 Macro: Richard Florida on the Great Reset
What changes are produced by great economic upheavals? The financial and economic crisis prompts a rethinking of the assumptions about how businesses succeed and how economies operate. In a recent edition of the Global Business programme on BBC radio 4, Peter Day met Richard Florida, a renowned economic geographer who has written a new book The Great Reset. Here are some of the notes I jotted down from the programme:
read more...»Unit 3 Micro: Time of Use Pricing for Energy
When is electricity demand highest in the UK? The answer comes at the end of the blog!
The UK government is committed to the rolling out of smart energy meters between now and the end of 2020. Millions of homes will have smart meters installed which track how much electricity you use and when you use it - the installation cost is approximately £350 per unit although this may come down with the utilisation of economies of scale. Smart meters will give consumers and the utility businesses minute-by-minute information about energy consumption and this could fast-forward the launch of time of use pricing tariffs for us all in the years ahead. It will mark a move away from flat-rate tariffs towards fully-fledged peak and off-peak pricing.
At the moment around one in ten households are on Economy 7 tariffs which offers lower prices for electricity used during off-peaking times in the late evenings and early mornings. Economy 7 seems to have been around for as long as CEEFAX and if you understand that you are giving your age away!
read more...»Unit 1 Micro: Costs and Benefits of a Super Sewer for London
Thames Water has plans for a super sewer running 20 miles from Hammersmith to Beckton but the plan has come up against intense opposition from many local resident groups. It is a good example to use of cost-benefit analysis in action with a project that will directly affect millions of people living and working in the capital. There is an almost unending list of stakeholders involved in the debate.
read more...»Unit 3 Micro: Economies of Scale and the Kinect
Here is an example of economies of scale in production. Microsoft’s motion-sensing camera the Kinect was one of the fastest-selling consumer electronics device in history when it was launched in November 2010. In a report on the FT’s technology blog, Dennis Durkin, Xbox chief financial officer, is quoted as saying that economies of scale have been the major factor driving down the unit price of Kinect from $30,000-$40,000 when it was under development two years ago to $150 now.
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