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For those of you are thinking of buying an iPhone, you would probably do well to wait until Christmas it seems. The exclusivity agreement between Telefonica-O2 and Apple is set to expire in the next few months, which could lead to an all-out price-war in time for the festive season. As the exclusivity is removed, it should make the market more contestable, and the price should fall.read more...»
Is this going to be the new name of the proposed merger between T-Mobile and Orange?read more...»
A ban on traditional lightbulbs imposed by Brussels last year and adopted by the UK for implementation in 2010 is to be extended to cover spotlights and downlighters, an read more...»
Whilst unlikely to be fully resolved any time soon, the WTO has got around to producing its (unhelpfully, confidential!) ruling on whether European government loans to Airbus for aircraft development are illegal subsidies or not.read more...»
Despite getting clearance from the U.S Department of Justice, earlier this month, Europe’s top competition regulator today opened a full, in-depth inquiry into the proposed $7.4bn acquisition of Sun Microsystems by Oracle, citing concerns about the potential for anti-competitive effects if the merger went ahead unconditionally.read more...»
Over the summer, it seems that the browser wars have intensified, and Microsoft’s Internet Explorer’s virtual monopoly has its days numbered. Earlier this year, Google brought out its Chrome browser, to rival Microsoft’s Internet Explorer, and today it was announced that Google have signed a deal to get it in to Sony PCs.read more...»
With digital products the marginal cost of production is pretty close to zero - Google does not show up on your credit card bill and neither does Facebook. Bertrand predicted in the late 19th century that “in a competitive market, price falls close to its marginal cost”. Competiton is something we take for granted - it exists when you have two similar goods or services produced by mutliple parties. An under-cutting process can take place until the market price edges down towards the marginal cost of production. Now we have a digital economy where the MC of serving one more Tweet or web page is zero. How can you make money in this digital economy?
A recent talk by Chris Anderson at the RSA is now available to view on their web site. His explanation of freemium products is interesting as are his comments on piracy. To Anderson, piracy is an example of the animal forces of the market place because the music companies chose not to make their music free. Piracy is the market place imposing the price of free.
Another article on freemium is available here from the New York Times: Using Free to Turn a Profit
Chris Anderson - Free: The Future of a Radical Price
Oligopolistic theory predicts that firms in such a market structure will tend to prefer non-price competition rather than price competition due to the self-defeating outcome of a price-war.read more...»
High and rising youth unemployment is one of the most important economic and social policy issues of the day. The CBI has called for extra funding from the government for a youth jobs subsidy - a £2500 per head payment for businesses that offer apprenticeships. The aim is to widen access to apprenticeships and equip school and college leavers with extra skills to improve their human capital and occupational mobility. If the lobbying proves effective, this is a good example to use of an active-labour market policy whose objectives are firmly on the supply-side of the economy.
According to CBI Chairman Richard Lambert, ““Young people leaving education this summer face the toughest job market in a generation. We know from previous recessions that a lack of employment after leaving education can damage young peoples’ long-term prospects at a critical point as they move from education to the world of work.” Their 5-point programme for reducing youth unemployment is available here.
Given that the government was quick to introduce a £2000 car scrappage incentive (paid paid for by the motor industry) - it might make for interesting discussion in the classroom to weigh up the relative benefits and costs of using a similar pot of cash for a direct subsidy for consumers contrasted with an employment and training subsidy for employers. Who should pay for training? Why is the free-rider problem relevant here?
This Guardian article argues that “Apprenticeships are an out of date idea. The only reason that they are back on the agenda is because of the TV show.”
In February 2008 senior executives of Toshiba made a tearful farewell to their attempts to make the HD-DVD format a success over their rival Blu-Ray. The decision became inevitable after Warner Bros, Sony Pictures, Walt Disney and Twentieth Century Fox said they would only release their films in the Blu-ray format. Sixteen months later Toshiba is to start making products that can play Blu-ray discs.
Hyundai Motor Co led the way in the sales charts for July. The UK version of the car scrappage scheme offers motorists £2,000 in discount on new vehicles when they trade in vehicles that are more than 10 years old.
For the moment it is private buyers who are driving sales higher. My local Citroen dealer confirmed to me today that their sales have been boosted by the consumer discount - which is part financed by the government and by vehicle manufacturers. As our charts show new car registrations have moved higher and car production - affected greatly by winter plant shut-downs and extended holidays - is now showing signs of recovery. Sales and output for 2009 will be down as a whole - but perhaps the worst is now over?
A new series of interviews is available through the BBC iPlayer in which Robert Peston, the BBC’s Business Editor talks to global business leaders who run multinational companies - here is the link
Commercial loans and overdrafts and other forms of credit for businesses are hugely important to sustain businesses fighting a recession or those in better shape and looking to expand. It is a truism that the UK economy will not engineer a durable recovery unless the international financial and economic backdrop improves. Increasing the availability of bank lending especially to small and medium-sized enterprises is another essential building block to an upturn in output and jobs.
In this sense the news that Barclays has lent £17 billion to UK households and business in the first half of 2009 - already outstripping the £11 billion target it set for the whole of 2009 - is welcome. But that figure hides the actual cost of servicing loans. Even if a business can maintain an overdraft facility or gain access to fresh credit, it is likely to be paying more for the privilege. The cost of debt can be as important as the supply. Here is a good video on Rhino Rugby a manufacturer of equipment for the rugby industry.
Given that thousands upon thousands of smaller businesses use credit cards as a way of tiding them over from month to month (something the business studies textbooks and exam boards seem strangely reluctant to recognise despite overwhelming evidence), it will come as little comfort to entrepreneurs to be paying upwards of 40 times base rate (policy rate) for their loans.
Two stories on the role that information can play in influencing our choices caught my eye today.
The first is a new report from the Food Standards Agency that claims that there is little difference in nutritional value and no evidence of any extra health benefits from eating organic produce. Given that organic food in most of the major supermarkets carries a price premium, will more people decide that, leaving aside ethical and environmental considerations, the supposed health benefits from organic produce has been exaggerated? The recession has made life tough for organic farmers; this report will do little to help them, no surprise that one of the leading stakeholders, the Soil Organisation has laid into the report!
The second is a damming report on the health effects of tanning machines from the International Agency for Research on Cancer - reported here by the BBC - that claims that sunbed use is on a par with smoking or exposure to asbestos. Again an industry stakeholder the Sunbed Association has been quick in putting forward a defence.
Information failure is a key cause of market failure. I suspect that consumers who enjoy flaunting their organic credentials and who swan around with a fake tan have both been conned for many years and spent a small fortune in the process!
This BBC report discusses a deal announced between Microsoft and Yahoo.
“Microsoft’s Bing search engine will power the Yahoo website and Yahoo will in turn become the advertising sales team for Microsoft’s online offering”
This is an attempt to compete head on with the growing market dominance of Google in search engine queries but as the chart above shows there is a clear divergence between the market share of Google and the combined market share of Microsoft and Yahoo.
Microsoft and Yahoo’s combined share of U.S. search queries was 28% in June, down from 30% a year ago, according to comScore.
Here is the latest move in the battle for position, power and profitability in the market for digital downloads. Spotify the music streaming service based in Sweden has submitted an application to Apple for their iPhone that will allow their premium service users to search for music on the Spotify playlists and download their free library of songs onto their mobile phone.
Spotify say that the free application for the iPhone has met all of the developer guidelines required by Apple. The application will not allow users to buy music from the iTunes online store and herein lies the stumbling block! Will Apple really allow potentially one of its major rivals in the market place to find a home on the ultra-popular iPhone? Their dominance of the mobile phone music market looks too strong and too profitable to allow this new application. Spotify has become tremendously popular within a short space of time - it is claimed that they have over two million users in the UK alone.
*The advertising-funded version of Spotify is free of charge
*The premium service costs Euro 9.99 a month
*Apple has already approved several other music services such as Last.fm, Deezer and Pandora but these are much smaller competitors
*Music technology experts say that one of the main advantages of the Spotify application for the iPhone is offline play - push a button to download your Spotify playlists containing up to 3,333 songs to the app for playing whilst not connected
Here Rory Cellan-Jones from the BBC test drives the new Spotify application
And this Guardian editorial sings the praises of being able to listen to music without paying over the odds
Update: In August 2009 Apple announced that it had approved the bid for an iPhone app from Spotify. Details here
Hedging is a way of reducing uncertainty over the future path of volatile commodity prices such as the cost of fuel. One the most important decisions that an airline can take is the extent to which it uses hedging to lock in the price of a barrel of kerosene for a period of six or twelve months.
Ryanair provides a good example of how this can have a decisive effect on profitability. Late in 2008 Ryanair was hedged into paying the equivalent of $125 a barrel for kerosene just as the world price price of oil was collapsing to below $40 a barrel - the result was higher operating costs and a Euro 150 million hit on profits. For 2009 around four-fifths of Ryanair’s fuel requirements are locked in at $62 a barrel which with oil prices nudging up towards $70 a barrel will give the airline much needed breathing space as the recession affects demand for seats and forces many airlines to cut prices still further to maintain a profitable level of load-factor (the percentage of seats on each flight that are filled).
*Ryanair is now Europe’s largest airline having overtaken Lufthansa and British Airways
*In the last twelve months nearly 60 million passengers have flown with the airline
*With a market capitalisation of £4.6 billion, Ryanair is larger than the German flag carrier and easily more than twice the size of BA.
*Ryanair has a 28% stake in rival Irish airline Aer Lingus and has tried several times to take it over - so far without success!
The Big Question feature in the Independent is a reassuringly regular source of useful and interesting background articles. There is often an economic / environmental /social / business perspective to their choice of topics in the news. And the Indy handily provides some vivid graphics that can serve well as student handouts or a prompt for a data response question. Here is a brief selection of recent features
Why is inequality rising in the UK? (July 2009)
Can the G8 meet its climate change targets? (July 2009)
Sharing information through social networking
There are many tools for people to share content they have seen on the internet. Which applications have the greatest market share at the moment?
Yahoo Bookmarks 5.5%
My Space 5%
Others include Stumble Upon, Digg It, Windows Live
Source: Alley Insider
The battle between Microsoft and the EU competition commission seems to have gone on for an age. In the latest move Microsoft has agreed to contact European users of its Windows software to a choice of Web browsers. The browsers featured in the ballot would be determined by market share; the five with the highest—at the moment, Internet Explorer, Firefox, Apple Inc.‘s Safari, Opera and Chrome—are almost certain to be displayed. What is critical is the number of web users who then decide to switch to an alternative browser and click on an option for Microsoft IE to be removed as the default web browser. My default choice is now Firefox from Mozilla. Windows 7 is due for release on the 22nd of October.
This BBC news article flags up that Jury’s has secured additional finance to support their expansion programme. These are challenging times for the UK hotel industry as recession has affected room occupancy rates from business and household customers. But Jury’s Inn has instigated an ambitious programme of new hotels - a strategy of internal or organic growth. urys said it would look at new developments in key markets such as London. It has already opened five new hotels across the UK this year.
New hotels have opened in Sheffield, Watford, Exeter, Swindon and Derby. Another hotel is due to open in Aberdeen later this year, with more to follow next year in Portsmouth, Glasgow, Newcastle and Bradford. A new hotel in Prague is due to open in September 2009. Jury’s Inn has traditionally placed itself in the affordable business hotel market segment.
The Telegraph has an engaging piece here on ten ways in which the recession is changing Britain - from the explosion in the use of discount vouchers (real and virtual) to stay-cations, rising demand for sewing machines, takeaway pizza, discount food retailers and buses, consumers are showing resilience and ingenuity in responding to the challenges of the downturn. Smart businesses have taken advantage of the opportunities.
Feature rich smart phones such as the iPhone and Research in Motion’s Blackberry account for a disproportionate share of the operating profits of mobile phone manufacturers.
According to new research by Deutsche Bank, Apple and Research In Motion were responsible for 3% of all cellphones sold in the world last year but 35% of operating profits. In 2009 the figures are forecast to be 5% of the global market in unit terms but 58% of total operating profits. Together Apple and RIM had about 32% of the smart-phone market. Nokia dominates the basic mobile phone handset market where operating margins are much thinner.
The key to understanding the huge profits of smart phone makers is the subsidy offered by the mobile phone network providers who tend to treat mobile handsets as loss-leaders. They are happy to sell a phone for £60 or less because they can recoup the money and more through lucrative monthly call plans where the bulk of users (consumers) are locked in through minimum length of service contracts.
Palm Inc is trying to break into the cell-phone market and take some of the supernormal profits available.
The water regulator OFWAT has published their latest five-year price capping proposals for the UK water industry. They want household bills to fall in real terms for water customers in England and Wales - positive news for people struggling to pay their utility bills but not so for shareholders in the water companies who have become renowned for their generous dividends on the back of price increases over and above inflation in past years.read more...»
Hamish McRae considers how businesses are responding to the challenges of recession in his Economics Life piece in the Independent this morning. Drawing on a new report from management consultants Arthur D Little he considers some of the strategies that businesses are adopting given the special nature of this downturn. Improving hygiene, fitness and building muscle ahead of the recovery figure prominently and there is a fascinating graphic illustrating some of the priorities of firms at this unusual time.
“Businesses that do survive the present harsh climate will emerge in much better shape. All downturns speed up the process of structural change in the sense that things that were going to happen anyway happen much faster that they would have done. But the speed of this one has been so extreme that the world is cramming a decade of such change into a year or 18 months. As a result a lot of firms that still appear weak right now may emerge in rather good shape when demand returns.”
Improving hygiene: Actions to cope short-term with the implosion of confidence and collapse of demand e.g. rationalising operations and cutting overhead
costs, turning fixed costs into variable costs: 80-90 per cent of business respondents are giving these actions very high or high priority.
Fitness: Keeping talent on board is a very high or high priority for 82 per cent of respondents. Maintaining R&D and innovation expenditures is a very high or high priority for 67 per cent of respondents.
Muscle Building: preparing for the world to come beyond the downturn, for example building stronger relationships with regulators or a high priority to preparing for the low-carbon economy
The Sony Walkman was one of the innovations of its day - freeing up the music lover to play their favourite tracks on the go - thirty years on this appealing BBC magazine feature contrasts the iPod Nano with the Walkman which is thirty years old. A reminder of the benefits of innovation.
Global sales of mobile phone handsets set to fall by 10% in 2009
Nokia is the dominant manufacturer with 38.5% of the market in 2008
Average selling prices of their handsets have fallen from Euro 74 to Euro 62, operating margins are close to 10%
245 million mobile phone handsets were shipped in the first three months of 2009
Source: The Times (17-07-09)
*Tesco has a 31 per cent share of the UK grocery market
*It is the dominant supermarket in 72% of Britain’s 121 post-codes
*In April 2009 Tesco reported a 10 per cent rise in underlying annual pre-tax profits to £3.13bn
*Annual sales were £59bn
Source: The Times (17-07-09) and the Financial Times (04-09)
Well established business magazine with quarterly revenues of nearly $80m, a circulation of 936,000 copies and close on 5 million regular readers - available for sale - price - likely to be in the region of $1. Interested?
This report in the Financial Times has caused something of a stir. Alan Webber in the Huffington Post examines the challenges and opportunities for interested bidders in the loss-making Business Week - for long a fixture on the business shelves of news-stores across the world.
I cannot remember the last time I forked out any hard earned cash to buy a copy. I will happily flick through it at a train station or browsing magazines when in town, but as with many, I have migrated online for the vast bulk of my business and economics news and comment. The Financial Times and the Economist have successfully built communities of users around their digital output and this is now working in tandem with the print editions. Business Week looks tired in comparison.
JPMorgan reckons BusinessWeek could be losing $20m a year on $100-150m of revenue. US publisher McGraw-Hill is reported as having hired an investment bank to pursue a possible sale of Businessweek.
The annual rate of growth of output per hour worked (seasonally adjusted) for the UK economy is falling for the first time since the mid 1990s. There are good reasons for thinking that labour productivity tends to directly related to the business cycle; when demand and output is strong, firms will be making full use of their existing factor resources and capacity utilisation will be high. In a downturn, there are spare factor resources and productivity growth may suffer if businesses do not wish to adjust their labour force in response to declining demand.
The danger is that, in the absence of flexible pay that reflects lower output per hour, weaker productivity will cause a rise in unit labour costs and this will put further pressure on business profit margins and the internal funds available to finance investment. UK productivity continues to lag behind levels achieved by many of our major international competitor nations.
I took a break from writing yesterday with a delightful thirteen mile hike from the small Yorkshire town of Lofthouse to How Stean Gorge and pack again following the path of the Gouthwaite reservoir. Along the way I got up close and personal with numerous small herds of cattle and hundreds of sheep many of whom are just days away from losing their coats as the summer shearing season gets into full swing.
Sadly for what remains of the hill farming community of Nidderdale and the broader acres of the Yorkshire dales, the economics of sheep farming has become even more precarious than usual in recent months.read more...»
The Times reports a sharp increase in the scale of short-time working in the UK economy as businesses respond to the challenges of the recession by offering workers reduced hours (and gross income) in return for a better chance of keeping their jobs.
“Some 123,000 workers were working “short-time” between January and March this year, up from 36,000 in the same period last year, the most recent official figures show. Men were the worst affected, with a 286 per cent rise in the number of short-time male workers.” Manufacturing and service industries are both showing a move towards fewer hours, the car industry has been at the forefront of temporary plant closures, reduced shifts and extended holidays.
The true test of a flexible labour market is during a downturn. Are workers prepared to be flexible in their pay demands? Do businesses maintain spending and a commitment to training even when finances are tight? Can the newly redundant be sufficiently occupationally and geographically mobile to find work even though the number of unfilled job vacancies has shrunk considerably?
The trade unions are lobbying for a government subsidy for short-time working to encourage firms to hold onto their workers rather than make redundancies.
Here is an example of alleged price fixing that directly affects the prices that consumers pay in the market for their durables. The European Union competition commission are alleging that manufacturers of LCD screens have been engaged in a price fixing cartel in a market thought to be worth an estimated £43bn a year. The industry is dominated by LG Display and Samsung, which together have about half the market for television and computer monitors. Phillips, Sharp and Hitachi are also heavily involved in the market along with Chi Mei from Taiwan.
LCD panels are used in televisions, computer monitors and a range of smaller electronic gadgets including mobile phones and digital music players. The investigation into price fixing has crossed several countries including US, Japan, South Korea and Europe. In theory, fines for breaches of anti-trust laws can be as much as 10 per cent of annual turn-over.
Here is a superb example of how profit seeking businesses react immediately to a market opportunity.Barely had the dust settled on the untimely passing of the King of Pop when publishers around the world sprung into action to deliver tribute books - but speed is absolutely of the essence for the publishing trade as the ‘market space’ for Jacko memorabilia is likely to fill up almost as quickly as the O2 arena when his tickets went on sale.read more...»
It looks like the car scrappage scheme may be starting to bring about a softening in the decline in market demand for new cars. Over 85,000 new orders have been taken under the terms of the subsidy which affects cars more than ten years old. Scrap yards are benefitting from a boost in demand for their services and the car industry (naturally) is looking for an extension to the funding given to the scheme. This BBC video looks at some of the early impact - has the car subsidy given much of a shot in the arm for the British car industry? And this article looks at the pros and cons of car subsidies.
General Motors is back on the road only forty days after filing for bankruptcy. This is a good example to use of a failed business that is seeking to reinvent under state ownership itself by dramatically scaling back the size and scope of its operations. The Guardian reports that
” The US government owns 60.8% of the new GM, while Canada’s government holds 11.7% and a union-controlled pension fund has 17.5%. Creditors of the old company, who were owed $27bn (£16.67), were compensated with a stake of just 10% to the dismay of Wall Street bondholders who fought a short, unsuccessful battle for a larger slice. But the transformation has been painful for thousands of employees, parts suppliers and car dealers. Once cutbacks are complete in 2011, GM is likely to have just 38,000 blue-collar factory workers in the US, compared to 113,000 three years ago. The number of GM plants will fall from 47 to 31 and, through a clear-out of senior management, GM’s executive team will shrink by 35%.”
Leaner and meaner? There is chronic surplus capacity in the global car industry and General Motors will not be the only business to realise the burden of diseconomies of scale. Smaller businesses are frequently more nimble and innovative.
Here is an example of the kind of periodic price war that is characteristic of an oligopolistic market. The Guardian reports that the supermarket chain Asda has cut the cost of unleaded petrol and diesel to 99.9p a litre at all its 176 fuel stations. .Sainsbury’s, Morrisons and Tesco are the other main players in the market, and the Automobile Association believes that they will follow Asda’s lead.
Is Asda really the price leader in the UK petrol retail market - Morrisons has already followed suit by dropping prices to what is considered to be the psychologically important price of 99.9p per litre or less. Most supermarkets engage in price-matching in local areas so if a rival’s prices are going down, then they will go down as well - to some economists this is a form of hidden price fixing.
Or is this move part of a wider phase of price competition across the supermarket chains, using ultra-low profit margins on fuel to entice customers into their stores? The report says that the number of petrol stations in the UK has fallen to about 9,000, from a peak of 30,000 three decades ago and that smaller independent petrol stations would struggle to match the firepower of the big supermarkets. A 2p drop in the price of petrol saves the average UK family £4.34.
The average charge per litre for unleaded has been 103.8p, ranging between 99.9p and 115.9p.The average for diesel was 105.3p, ranging between 99.9p and 117.0p.
It seems that Joseph Schumpeter’s process of creative destruction is still going full throttle ahead, with Google’s announcement this week of a operating system (Chrome OS) to rival Microsoft’s dominance through Windows.read more...»
The retail price of over-the-counter painkillers fell sharply a few years back when one of the last legal price-fixing agreements covering pharmaceutical products came to an end. Within days the cost of a packet of soluble aspirins had halved as supermarkets rushed to bring their own-label products to the market space. Cheaper pain-killers have been a benefit to millions of people who paid over the odds to chemists and Big Pharma for cold remedies and relief from the pain of toothache and other ailments. But one of the unintended consequences of tough competition in the market has been the emergence of yet more powerful tablets.
How many of us when faced with an array of cold-remedies now opt by default for the ‘extra strength’ variety? The manufacturers know that putting simple phrases such as “new improved”, “maximum strength” and “fast acting, dual action” on the packets are often enough for consumers to trade up to strong pain-killing products and pay a premium price.
But one of the consequences of research and development in the over-the-counter market for pain remedies has been growing evidence of consumer addiction. John Gapper writes about this in this blog.
Codeine present in many products such as Nurofen Plus and Solpadeine Plus in particular is causing great concern. A House of Commons report published earlier on this year recommended that painkillers containing codeine should be sold in smaller packets and available only after consultation.
O2 has won the exclusive contract to sell the new Palm Pre in Britain and the contract means that O2 will be the only UK network selling the Palm Pre and Apple’s iPhone. These exclusive deals for O2 will consolidate its position as the dominant network service provider for smart phones. O2’s parent company Telefonica will also sell the phone exclusively in Spain, Ireland and Germany, buyers of the new phone will be tied into a two-year deal. But given the huge demand for these data hungry devices, will O2’s network capacity be sufficient to cope with the expected surge in phone demand and usage when the Palm Pre arrives in Europe this autumn? Existing iPhone users may find that network access speeds and reliability will suffer and thousands of extra users join the O2 system. More here from dot.life blog written by Rory Cellan-Jones.
It is generally assumed that the oil market is an oligopolistic market with output dominated by a few large players; whilst the consumers in the market are price-takers, given the significant number of consumers that exist. However, (allegedly) it seems that a trader at PMV Oil Futures has managed to move the market all by himself.read more...»
The recession is creating a growing amount of spare productive capacity across many different markets and industries. From container ships to hotels and from steel plants to airlines, the fall in demand has lowered capacity utilisation and put a big squeeze on profits. That pressure on profit margins comes not just from weaker revenues. Keep in mind that many businesses have a large fixed cost component such as the overhead costs of operating a network. Thus when output is contracting, the average fixed costs of production increase.
Declining demand and rising productive slack inevitably cause a fall in planned investment spending - economists term this a negative accelerator effect. BBC news reports that British Airways is cutting capital spending in response to the slump in demand and mounting losses. “The airline said it had cut spending by 20% to £580m ($952m) from £725m, and had lengthened its schedule of orders for 12 Airbus A380 aircraft.”
Further evidence for the reverse accelerator affect comes from Japan where Japanese firms cut their capital spending by a record level in the first quarter of 2009. In contrast Stagecoach is increasing investment in a fleet of greener buses.
Geoff has written an excellent piece for econoMAX, our digital magazine for A Level Economics Teachers and Students on whether and how newspapers should charge for content. For those of you who are new to econoMAX, here is the article:
Changing the rate of value added tax (VAT applied to a product should bring about a change in the retail price of a good or service to the consumer. The current rate of VAT in the UK is 15% following a temporary cut from 17.5% in November 2008. Today the Public Health Commission has started to lobby for a reduction in VAT to the min rate allowed under EU law - 5% - for products such as sports equipment. The justification is that lower prices will increase the affordability of leisure products and help encourage more people to follow a healthy life style. As always a reduction in an ad valorem tax will have a great impact on the price of more expensive equipment - for example the £1000+ cost of a concept 2 rower compared to an entry level tennis racket. The arguments are raised in this BBC news article.
Across the Channel the cost of eating out will fall as a result of a cut in VAT by the French government. Value-added tax (VAT) has been reduced from 19.6% to 5.5%, in an attempt to increase consumer spending and create thousands of jobs.
On a different matter I didn’t realise until last week that VAT is applied to razor blades - one reason (but not the main one) behind the scandalously high prices that the likes of Gillette and Wilkinson Sword charge for their cartridges.
An increase in the tax on the profits of bingo companies was the subject of a demonstration in London today. The new tax will be 22% up from the previous level of 15% and campaigners argue that this will lead bingo companies to raise admission prices or perhaps cut prize money on offer. The bingo industry has already come under pressure from the smoking ban and changes in gambling laws which have limited the types of fruit machines allowed on their premises. For hundreds of thousands of elderly people bingo is a regular pastime, indeed it is part of the social fabric of many less affluent areas. But the demand for bingo halls has declined over the years - an example perhaps of a service which has a negative income elasticity of demand. The Bingo Association is fighting to have the tax hike reversed but unless there is a change of government, they are unlikely to strike lucky.
The tax rise does seem inequitable especially as bookmakers, the football pools and casinos pay a gross profits tax of 15 per cent - surely bingo is at the softer end of the gambling industry?
The profitable East Coast rail line north of Newcastle heading into Northumberland towards Berwick upon Tweed is one of the most glorious on the entire British rail network. There are stunning views looking out to Holy Island, Bamburgh Castle and the delightful village of Alnmouth. And as trains pull out of Durham there is a fantastic panorama featuring Durham Cathedral, a view to take the breath away whatever the weather. Even the most hardened commuter is tempted away from their laptop to soak up the view. It is unlikely that senior executives at National Express will be in the mood to savour these delights since the government is taking the East Coast rail line that runs from London to Edinburgh into public ownership.
The role of competition commissions around the world is to protect the public interest, particularly against firms abusing their dominant positions. In this light, another victory has been struck by the EU Competition Commission today as an earlier judgement comes finally into force as the cost of sending text messages when abroad has been capped. We’ve also seen a fall in the maximum charge for receiving and making a phone call, whilst abroad.read more...»
We’ve all experienced the scenario at some point – you go away for the weekend and you’ve left your mobile phone charger at home, but all your friends have different phones and none of their chargers fits your phone. Well, you may never have to go through that frustration again! An agreement has almost been reached on universal phone chargersread more...»
The press is full of coverage about a possible takeover bid by Vodafone for T-Mobile UK which is currently owned by Deutsche Telekom. Nothing is certain yet - but if a takeover goes ahead and is allowed by the competition authorities, Vodafone will have around 40 per cent of the market for mobile phone users in the UK.
The approximate market shares would look something like this:
O2 (owned by Spain’s Telefónica) 27%
Orange (owned by France Telecom) 22%
3 (owned by Hutchison Whampoa) 8%
If Vodafone and T-Mobile become one business there is one obvious cost saving (or synergy) - namely that the merged business would have to run only one mobile network instead of two, for example, so Vodafone could aim to secure significant savings in capital and operating spending. For any would-be purchaser the risk is over-paying for a business, there are plenty of examples of the ‘winners’ curse’ in past takeover bids.
The mobile phone market is a classic case of an oligopoly with just a handful of corporations dominating the market - but you do not always need a large number of operators to create genuine price and non-price competition in the industry. Indeed the UK is the only major European market with five mobile operators, and some analysts claim that the fierce battle for market share has had the effect of cutting profit margins and reducing the profits needed to reinvest in rolling out the next generation of mobile phone technology and improving the speed and reliability of a mobile phone network that needs to cope with an ever-increasing number of data-rich applications.
Having four rather than five major players looks on the surface to be reducing competition, but perhaps all of the remaining businesses will gain from higher profits at a time when the recession has hit the demand for new handsets and mobile phone services. Vodafone is a giant in the industry reporting revenues of £41bn for the year to March 31, 2009 and an operating profit of £11.8bn.
In the mobile phone service provider market there is always a balance to be struck between economic efficiency and welfare. Competition keeps prices down for consumers and helps to make fast mobile connections more affordable to millions. But the businesses themselves must be able to finance investment on enormous networks and generate a sufficient rate of return for their shareholders. It will be interesting to see how the competition authorities respond to the next wave of consolidation in the industry.
The Observer carries an article today which focuses on what appears to be a spending spree by cash-rich supermarkets to take advantage of falling demand for and prices in the commercial property market.read more...»