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”
Cheap flights - elasticity and effective demand
Double-digit annual inflation rates in the prices of airline tickets for the low cost carriers will bring about a radical restructuring of the industry according to a report in today’s Times. I have tended to assume in the past that the demand for cheap airline tickets was fairly inelastic - for most people the price of a return flight for a holiday is a low percentage of their annual income; holidays in the sun have come to be regarded as an essential part of the year for millions of travellers. And for those with second homes in the mediterranean flights are pretty much unavoidable. The Times article hints at a low price elasticity of demand
“According to analysts a 10 per cent increase in fares typically leads to a 6.5 per cent fall in passenger numbers. Budget airlines carry an estimated 45million British passengers a year. If fares rise by 20 per cent over two years, passenger demand looks set to fall by more than five million.”
So the predicted large contraction in demand isn’t down to any fudnamental change in demand elasticity - more the scale of the fare hikes which are pricing thousands more out of the market - effective demand is taking a hit. I suspect the response may be even greater if the low cost airlines continue to fashion new ways of extracting revenue from their passengers. Doug McVite is quoted as saying “it is probably only a matter of time before some joker suggests charging for using the toilet. The whole experience of flying budget will become even more unpleasant.”
Expresso Book Machines - Printing on Demand
“As many as 1m titles may soon be available through on-demand printing, including 600,000 titles being digitised by the publisher Lightning Source, available to be printed in one-off versions on the Espresso machine, as well as hundreds of thousands of “open-source” titles, such as classics with expired copyright.”Countless hours have been spent by look lovers searching in second hand bookstores and online inside the long tail of millions of back-catalogue books and pamphlets that are out of print. The second hand book industry is thriving and several towns such as Sedbergh and Hay on Wye have enjoyed a renaissance built on clusters of bookstores that lure browsers throughout the year. But perhaps the days of longingly poring over second hand book shelves are under threat from a technological innovation called Expresso Book Machine which claims to bring printing on demand into the mainstream of book retailing. This machine is featured in today’s Sunday Times.
read more...»Change of gear and direction for Ford
The market mechanism at work!
Ford Motor has announced in the wake of a second quarter loss of nearly $9bn and a double-digit decline in US car sales volumes that it is shifting its focus from pick-up trucks and fuel guzzling sport-utility vehicles towards smaller, more fuel-efficient passenger cars. It will bring six small European models to north America, and convert three existing truck and SUV assembly plants to small cars. It also plans to accelerate the introduction of a new fuel-efficient V6 engine and to double four-cylinder engine capacity.
There are costs involved in revamping production, re-tooling the factories that previously assembled SUVs and writing off assets that can no longer be used in making the smaller vehicles - but the aim is to reduce operating costs by $5n over the course of the next couple of years. This is a good mini case study in one of the factors that affects elasticity of supply - i.e. the cost and ease with which factor inputs can be switched to produce different goods and services. The issue of how the motor sector is adjusting to changing consumer preferences is a good application of the concept of allocative efficiency.
Production of the Ford transit van in the UK is currently under review This BBC news article looks at how some of the world’s biggest volume car-manufacturers are adjusting to falling demand and heavy losses.
The Guardian: Ford downsizes to beat the car industry crisis
The 99p effect
The BBC news magazine explores the psychological basis for retailers pricing their products at £1.99 or £3.99 and the disproportionate effect this kind of price point can have on our buying behaviour. It is a great article to use when introducing consumer behaviour and in explaining the non-linearity of demand curves when teaching price elasticity of demand.
read more...»Plenty of room at the Beijing Inn
The long awaited financial bonanza for Beijing’s hotels during the forthcoming summer Olympic games seems less likely to materialise with the news that many 3 and 4 star hotels remain vastly under-occupied with the games just a few days away. It seems that the expected influx of nearly 500,000 visitors from overseas will prove to be an over-estimate - tourists appear to have been put off by the cost of travelling, fears over security and the time and expense of arranging visas. Domestic visitors from elsewhere in China seem to have been affected by the massive earthquake in south-west China and the snowstorms that struck the south in February.
The response of hoteliers when market demand turns out to be lower than forecast is a classic form of second degree price discrimination - reducing rack rates in a bid to increase the take up of unsold rooms. Given the travel distances involved, it would appear unlikely that the price reductions will have much impact in enticing people onto planes bound for Beijing this August. Most of the four or five star hotels will already be full of Olympic dignitaries most of whom wont have to pay a penny for their time at the Games.
Bricomortis
The Rightmove asking price index is a useful gauge to where the balance of power lies in the UK housing market and the shifting sands of sentiment in the property sector.
read more...»Le Crunch Hits the Fringe
Collapsing consumer confidence, increasing competition from other live events across the UK, high ticket prices, dreadful problems with the online ticketing system have all combined to hit ticket sales for the Edinburgh Fringe this August and remarkably there are still many city centre hotels with spare rooms with the Festival just a fortnight away. Normally the month of August is the cue for hotels and B&Bs to hike up their prices to silly levels to take advantage of the influx of people staying for the festivals. But this year things look to be different ...the Scotsman reports that “Hotel and guest house bookings for this year’s Festival are at an all-time low for this time of year….and… Dozens of private flats are still being advertised as available to rent on the Fringe’s website”
My week in Edinburgh for the fringe is always one of the highlights of my year, maybe it will be a little easier to get a table for supper in 2008 and perhaps I should have played chicken and delayed booking hotel rooms!
Botching the Apple launch?
Seth Godin writes about scarcity
“We can learn a lot from the abysmal performance of Apple this weekend. They took a hot product and totally botched the launch because of a misunderstanding of the benefits and uses of scarcity ...Smart marketers understand that scarcity (intentional or not) is a tool, one that can be used to enhance the story, not detract from it”
And gives five principles for how smarter businesses can exploit scarcity
I am told I must now regard my BlackBerry as a inferior products now that the all-singing, all-dancing iPhone 3 has hit the streets - bunkum!
Cross elasticity: High speed rail and oil prices
Forget a third runway at Heathrow, we need another Terminal at St Pancras! That is the message from Carl Mortished in his world business briefing in the Times this week. Demand for hi-speed rail services is soaring as people desert short-haul flights in response to the fuel surcharges and hassle of getting through security. Traffic growth on Eurostar has increased by over a fifth in the first quarter of 2008 and revenues are up by more than 25%. Consumers are realising the advantages of travelling by hi-speed rail for cities 600 miles or less apart. His article is here:
High-speed trains seize short-haul market as fuel cost cripples the airlines
Oil prices and demand for scooters - cross elasticity
High gasoline prices is having a classic cross-price elasticity of demand effect. Sales of bicycles, scooters and motorcycles are up. Sales of sport-utility vehicles are down as consumers respond to the changing real cost of getting about town using a motorcar.
Market demand for scooters is said to be soaring in many parts of the USA - here is a link to an article in the Dallas News. Pure economics and a certain nostalgia seem to be two driving forces behind the shift in the pattern of demand. And as sales of scooters rises, so too does the demand for complementary services such as motorcycle-safety courses and scooter riding equipment such as helmets, gloves and motorcycle jackets,
Price anchoring
There is a really good article on price anchoring and the iPhone in the Washington Post today.
read more...»Demand and Supply Revision Challenge
Draw a demand and supply diagram and show a shift in one of the curves (e.g. demand shifting outwards).
Give the students 5 minutes to think of as many causes of this shift.
1 point awarded for each correct cause; 3 points for one no one else has thought of.
12.1 came up with these 15 causes of demand shifting outwards:
1. increase in income – particularly luxury goods
2. increase in wealth (housing market or stock market boom)
3. increase in price of substitute
4. decrease in price of complement
5. increase in population
6. successful advertising campaign
7. anticipation/speculative demand – e.g. anticipation of scarcity
8. increase in popularity/fashion
9. Veblen effect – ‘snob’ effect, ‘must have’ good
10. change in legislation (e.g. compulsory safety equipment or emissions technology)
11. falling interest rates
12. easier credit availability
13. increase in quality of good
14. anticipation of inflation – consumers bring forward purchases
15. appreciation in exchange rate in market for imported goods which are a substitute for domestic goods
After the break we are doing the same for supply shifting inwards….. lots of good revision points already on linking the correct curve to the correct determinant!
Here are the answers for supply shifting inwards:
1. higher costs (wages, rent, raw materials, land, machinery/physical capital)
2. labour strike
3. natural disasters – particularly agriculatural-based/LEDCs
4. war
5. higher indirect taxes
6. lower or removal of susbidy
7. supply restrictions
8. cap on emissions
9. change in incentives away from producing this good
10. resources moved into other industries
11. increased scarcity of resource, e.g. oil – linked to higher costs
12. greater monopoly power/less competition
13. decrease in factor mobility
14. changing goal of seller – e.g. withdraw from particular market
15. appreciation in exchange rate increasing prices of imported raw materials and finished goods – ‘imported inflation’
Many thanks to Alex, Atin, Will, Clive, Arvin, Liam, Keval, Neal, Matt H, Matt S, Thomas…...
Placebo, price and pain relief
The medical profession has long debated the extent and value of the placebo effect - defined variously across a selection of web sites that I visited tonight as “the measurable, observable, or felt improvement in health or behavior not attributable to a medication or treatment that has been administered.” or “when a person is successfully treated by a dummy drug just because they believe it works.” Can enthusiastic doctors actively promoting dummy drugs have a greater effect on their patients purely on account of their passion and support for the drug? And what happens if patients are told something prior to taking a treatment about the price of a particular medicine?
read more...»Popcorn and price discrimination
Why do movie theatres sell popcorn, coca cola and hot dogs for such high prices?
On the surface it looks like a classic case of the movie theatre being able to capture the consumer surplus of cinema-goers once they have bought their ticket to see a film.
Say for example you might have been willing to pay £8 to see There will be Blood at your local cinema, but that the ticket price is £6. That implies a consumer surplus of £2. The cinema might try to extract that from you by raising the price of your carton of popcorn well above the marginal cost of supply; you feel like you have got a good deal by getting in to see the film for £6 and psychologically you are perhaps more willing to fork out a little extra for your movie fuel. After all, once inside the theatre, you are hardly likely to go through the hassle of exiting back onto the high street to find a cheaper supply of pop corn or drinks?
read more...»
