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Thursday 29 November 2012

Unit 4: Poverty in the UK

This series of clips is heartbreaking...but needs to be watched to understand what poverty is really like in the UK. Part one below...the rest to follow.


Unit 1: Supply, Demand and Mitt Romney (Who?)

Here is a quick piece about market equilibrium as well as elasticity of supply and demand. Mitt Romney merchandise is now in the clearance section of stores with a 75% discount on the original price. Click here to see the original article.


Show how the loss of the election is likely to affect the market for Mitt Romney merchandise. You need to consider the following:

- the direction of the shift of demand (easy)

- the likely elasticity of supply

- the change in the elasticity of demand

Answer the above and draw a diagram shoing the new likely equilibrium.

I will post the answers after the break......


Wednesday 28 November 2012

Unit 1: Minimum Pricing on Alcohol

Ministers are proposing a minimum price of 45p a unit for the sale of alcohol in England and Wales as part of a drive to tackle problem drinking.




Click here to access the BBC article which poses many questions as to its effectiveness on problem drinking and the poor in society.

Questions to discuss:

Assess the effectiveness of this strategy on reducing the negative externality which is binge drinking.

Why might this be regarded as a from of 'Regressive taxation'?

What other methods could the government use to combat binge drinking?

Unit 4: China

Monday 26 November 2012

Unit 1: Market Failure

Click here to access several articles on all possible types of market failure with ideas on how to solve them. essential for Unit 1 questions.

Sunday 18 November 2012

Unit 3: Natural Monopolies Revision

Unit 3: Price discrimination and unfair business practice!

This is a great video on how some businesses are using cookies on our computers to price discriminate. The technology allows them to reduce our consumer surplus and maximise their producer surplus.


For example the cookies allow a business to know whether the user is using a PC or an Apple Mac. If they are using the latter then they assume the user has more income and so increase the price slightly. There is no official proof yet, but the OFT are investigating.

No more shopping with the Ipad for me!



Saturday 17 November 2012

Unit 3: Scoop it - A must read

Guys, you HAVE to take a look at this link.

Friday 16 November 2012

Unit 3: Do Monopolies always make supernormal profits?

Click here to access a great piece on the difference between analysis and evaluation: Analysis and Evaluation - do monopolies always make supernormal profits?

The latest figures on the US Post Office came out today so have they managed to turn the business around?


Instead of making improvements, the losses have got much worse, increasing to US$15.9 billion in the latest financial year! As has been the case with some of the big car companies in previous years, having to pay for future retiree health benefits has a huge impact with US$11.1 billion of the loss attributed to this fact. If this and other labour related expenses were taken out of the accounts, the loss would be a paltry US$2.4 billion which is an improvement on the last year!

Having government control and regulation can have its benefits but also significant costs. If USPS were in the private sector, it would have long ago ditched its unprofitable Saturday mail delivery and saved a significant amount of cash. However, current law states that they must deliver on Saturday and while there is legislation before Congress that could change this, it may not happen anytime soon.

The following graphic shows one of the main problems alluded to in the earlier blog piece, although USPS is a statuary monopoly with significant barriers to entry, technology has meant that demand for their product is declining (and the losses are mounting). An excellent example for students to use for evaluating the usual textbook theory!



Tuesday 13 November 2012

Unit 3: Ofgem and regulation

Gas prices fixing probe: Minister to address Commons
(see questions at the end)

The energy secretary said he would follow the two investigations closely
Energy Secretary Ed Davey will make a statement to the House of Commons later as regulators investigate claims that wholesale gas prices have been manipulated.

Mr Davey said he was "extremely concerned about the allegations".

The investigations by the Financial Services Authority (FSA) and Ofgem follow claims by a whistleblower.

Four of the UK's big six energy suppliers have released statements denying any involvement.


The wholesale gas market includes everything from the UK's own North Sea gas supplies, to gas from Norway or elsewhere, or arriving in the UK by ship as LNG, liquefied natural gas.

'Less transparent'

Energy companies buy gas at the wholesale price and then sell it on to businesses and domestic users.

The allegation is that the market has been rigged in a similar way to the fixing of Libor, the inter-bank lending rate.

It is claimed that on 28 September, dealers made unrealistic bids, at the time when information was being gathered to set the wholesale gas price, to suit their own trading position.

David Hunter, an analyst at M&C Energy Group, said that most of the trading was done directly between companies, rather than via an electronic trading system, and that this system was, in theory, easier to manipulate.

He told the BBC: "This sort of trading is less transparent than a fully fledged market. Hypothetically someone could seek to artificially lower the price by making small trades below the prevailing market price that may benefit them."

The alleged manipulation is said to have reduced the wholesale price, and as such does not imply any knock-on impact on the retail price paid by customers.

The cost of wholesale gas makes up the majority of our energy bills - 45% of the average energy bill is made up of the cost of wholesale gas, supply costs and profit margins.

'Considering evidence'

The Guardian newspaper, which received a separate tip-off from the whistleblower behind the allegations, said the investigations were into "some of the big six" energy providers, but the brief statements released by both the FSA and Ofgem did not identify any companies.

The FSA said: "We can confirm that we have received information in relation to the physical gas market and will be analysing the information."


Ofgem also said it had "received information" and was looking into the issue. It added that it would "consider carefully any evidence of market abuse that is brought to our attention as well as scope for action under all our other powers".

Mr Davey said he would keep in close contact with both investigations.

Labour's shadow Energy Secretary, Caroline Flint, said that if the reports proved to be true, they "suggest shocking behaviour in the energy market, that should be dealt with strongly".

She said that gas and electricity companies should be forced to sell the energy they generate into a pool, in order to open up the market and ensure fairer consumer prices.

The whistleblower, Seth Freedman, worked at ICIS Heron, a financial information company that publishes energy price reports.

ICIS Heron said it had "detected some unusual trading activity on the British wholesale gas market on 28 September 2012, which it reported to energy regulator Ofgem in October".

It added: "The cause of the trading pattern, which involved a series of deals done below the prevailing market trend, has not yet been established.

"If anyone was to benefit from this it would have been derivatives traders."

Energy company responses

EDF Energy said it "does not participate in loss-leading trading activity and considers it to be against existing market regulation".

It added: "We make information likely to impact market price formation publicly available on our website in compliance with the European Union's regulation on energy market integrity and transparency."

Npower said: "There is an explicit commitment in our code of conduct to comply with all laws and regulations."

Scottish Power said that it had "never engaged in trying to fix wholesale gas trading markets", adding: "Our trading division always acts with integrity and follows all rules in all of its engagements with the market."

SSE said: "We are entirely confident that our energy portfolio management team operate in a fair and legitimate way."

Questions for discussion:

What is a 'Whistleblower'?
How can the gas industry set prices?
Have the regulators done their job?
How will the consumers be effected by this in both the long & the short run?





Sunday 4 November 2012

Unit 3: Mergers, acquisitions & regulators.

Thanks to Gabriele for finding this excellent article on market structures and the difficulties regulators face when making decisions.....

THIS year has seen the demise of a Brazilian oddity: an antitrust regime that allowed companies to merge first and the regulator to ask questions only later. Under an unlamented system laid to rest in June, studies of market dominance were carried out after mergers and acquisitions had taken place—and not once, but thrice. First the finance ministry, then the justice ministry and finally CADE, the competition regulator, would ponder before a decision was reached. “Companies could bet on the process being so slow that if a decision went against them, they could go to court and argue that unpicking the deal was now impossible,” says Tatiana Farina of Insper, a São Paulo business school.


The three regulators have now been rolled into one, promptly nicknamed “Super CADE”. Deals that could lead to consumer-harming market concentration require prior permission. If in the previous year one firm had sales in Brazil of more than 400m reais ($198m) and the other sales above 30m reais, any deal now needs the regulator’s approval.

The new CADE is modelled on antitrust regulators in the United States—with one notable difference. It has far longer to issue its ruling: 330 days instead of 30. Fear of delay led companies to rush through around 140 deals in the weeks before the switchover in June. But so far, the new CADE has beaten its leisurely deadline, says Fabíola Cammarota of Souza, Cescon, Barrieu & Flesch, a law firm. The firm has received pre-merger decisions in less than three weeks on simple cases; a complex case it submitted in July is progressing smartly.

The old CADE fell into disrepute over Nestlé’s purchase in 2002 of Garoto, a Brazilian chocolatier, giving it well over half of the chocolate market. CADE ruled that the deal should be unpicked—two years later. By then Garoto had been swallowed. Nestlé has been fighting the decision in the courts ever since. The deal may now be referred back to CADE.

Such interminable cases used to crowd out investigations into suspected cartels. Now CADE should have more time for these, and it has fiercer weapons as well. They include stiffer penalties—managers guilty of market-rigging are now more likely to go to jail—and the power to offer plea-bargains to whistle-blowers.

Pre-merger approval should help to protect Brazilian consumers from their politicians’ fondness for creating national champions. When the merger of the two dominant brewers in the 1990s created a giant with 70% of Brazil’s beer market, the government said it wanted many more such deals in other sectors, and promised that BNDES, the national development bank, would help with loans. Creating giants able to compete globally mattered more than healthy competition at home. That may now change.

You can add to the blog if possible, some interesting points I found are: (some are evaluation points)

1. Efficiency of regulators. How much time it takes for the regulators to make its decision: 330 days Brazil (very slow) vs 30 days USA

2. How stiff are the penalties for colluding?

3. Power of plea bargain to whistle-blowers (similar situation to the Prisoner's dilemma)

4. Trade off between allowing large firms to emerge in order to compete internationally vs healthy competition at home