GlaxoSmithKline and Pfizer choose to collaborate on HIV drugs
Here is an excellent highly relevant article on cooperative behaviour between oligopolistic giants. Two of the world’s biggest drugs companies GlaxoSmithKline and Pfizer have announced a plan to merge their HIV treatments in a joint venture. ViiV Healthcare is an attempt for both companies to limit the risks of costly races to find new profitable treatments for HIV/aids and give them an opportunity to counter the loss of the revenues as these companies lose patent protection and are open to competition from generic drug makers. It is a strong reminder of the very high fixed costs of research into new drugs; the long lead times between new drug development, testing and finally getting it to the market. And also the impact of the entry of generic drugs into markets once patent protection runs out. The new company has a 19% share of the global drugs market, in comparison to the Californian company Gilead’s 31%.
Drug firms’ collaboration pools HIV treatments (Independent)
IPO of HIV business is ‘up to shareholders’ (Telegraph)
Banana Price War Must Hit Growers
The supermarkets are spinning the latest price war for sales of bananas as a welcome boost to the spending power of hard-pressed consumers. True in the short term - cheaper bananas in my household will simply encourage me to buy more but ultimately throw most of them away. The medium term impact on banana growers is of much greater importance and it is this issue that was addressed in a timely and useful Big Question feature in the Independent yesterday. Here is the link.
The Big Question: Why are bananas so cheap, and what does it mean for producers?
There is a huge amount of economics in the article not least some evidence on the oligopsonistic power of banana growers and the oligopolistic battle for market share among the major retailers:
“Banana production is an operation on a gigantic industrial scale and is dominated by just five huge companies, Chiquita (formerly United Fruit), Dole, Del Monte, Noboa and Fyffes, which control 80 per cent of the global trade between them.”
“Asda - which sells two million kilograms of bananas a week - is charging 46p/kg. On August 25, the price was 84p/kg and 99p/kg last Christmas. Tesco and Sainsbury’s had been forced to match Asda’s price while the cost of bananas at Morrisons has fallen to 57p/kg and 59p/kg at Waitrose.” (Daily Mail)
More here
Oracle-Sun merger
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.
Petrol price war breaks out
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.
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, 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...»Apple introduces variable pricing
As a regular customer of the iTunes digital music store, I have become accustomed to clicking “buy song” and spending my hard-earned seventy nine pence to download another single. So too have the 75 million customers who have over the last six years bought around six billion songs from the iTunes store.
read more...»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.
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
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