Internet News Search: Market Structures

For your blog post this unit, I'd like you to find a news article about a market that you think is a monopoly, an oligopoly, or is monopolistically competitive. Sorry, but blogs, opinion pages, or Q&A sites are off limits.

• Be specific about the market:  i.e., "the US auto market", or "the market for family restaurants".
• Use specific quotes from the news article to convince us about the market structure.  
• Include a link to the article at the end.  
• Do not duplicate a market already analyzed by your classmates.
• For an extra mark, you may disagree with a classmate's analysis.  Tell us what you think the market sturcture should be and why.

For example, the mobile telecommunications market in the US is an oligopoly:

There are a few large firms:  "AT&T, Verizon and Sprint"

There is price leadership: "Verizon dropped its fees and AT&T followed suit to produce virtually identical results"

There is product differentiation:   there are different kinds of "calling plans," "data plans," and "service quality" and "coverage"

http://mobile.blorge.com/2010/01/20/att-verizon-price-war-dismissed-as-myth/

Have fun being "Economic Naturalists"!

The Economic Naturalist

I read a cool book over Winter Break -- The Economic Naturalist.  It's a collection of short explanations for every day oddities -- all written by Econ students!  Here are some examples of the enigmas they observe:

Why are milk cartons rectangular, but soft drink cans round?
Why are there braille dots on the keypads of drive-up ATMs?
Why are the portraits on coins done in profile while those on paper money are in full face?

Your blog post for the end of the semester is to consider an odd situation you observe as you live your life here in Bahrain.  In your post, please do three things:

1)  Describe the situation and ask the question you will answer.
2)  Offer the simplest economic explanation.
3)  Briefly consider the greater complexity of the situation.

Keep your limit to 200 words.  To give you an example, I've posted mine as the first comment [175 words :-)].  Have a look at it to get your ideas flowing.

I hope you will see economics all around you.  Have fun!

The Unfair Tax?

Dave Hornstein writes this opinion at examiner.com:

There is a proposal to replace the federal income tax with a national sales tax, dubbed by its proponents the "fair tax," a label that is not only dishonest but downright Orwellian. The British writer George Orwell, a man of uncompromising intellectual honesty, saw clearly that in politics something can be given a name that is the exact opposite of the reality

To call a national sales tax a "fair tax" is certainly Orwellian when sales taxes are highly regressive.  The less income a person makes, the higher percentage of it they have to spend.  With spending being taxed, the lower one's income, the higher the percentage of it that goes to taxes.

The fairest basis for taxation is ability to pay, which is based on income.  As a person spends a lower percentage of their income as they make more money, a graduated income tax is the fairest of all, for people at higher income levels have more money available to pay taxes.

What do you think of Hornstein's argument?  Use economic language and analysis in your explanation.  Is "ability-to-pay" the only criteria for determining the fairness of a tax?  How could a national sales tax be made more fair?  How might a national sales tax be considered "efficient"?  

Cap and Trade Debate

CHARLESTON, W.Va. (AP) - A global warming skeptic and a leading climate change expert  are going to debate the potential impact of cap and trade legislation on West Virginia's economy. Cato Institute Senior Fellow Patrick Michaels and Climate Change Director David Hawkins at the National Resources Defense Council will face off Dec. 7 at the University of Charleston.

Under legislation passed by the U.S. House and now under consideration in the Senate, the federal government would set limits on carbon dioxide emissions. Businesses would then buy and sell permits to emit the gases.

Michaels says the proposal would lead to job losses in mining, trucking, railroad and other industries.

Hawkins says it would provide opportunities for economic growth.

Explain one specific way cap-and-trade legislation may lead to job losses in mining, trucking, railroad or other related industries.  You don't have to talk about all of these -- just one specific way in one of them.  Then explain one specific way cap-and-trade legislation would provide an opportunity for economic growth.  You may not repeat what your classmates have already written; you must come up with a new idea.

Global Public Goods

The Zedillo Commission Report on World Bank Reform wants to "create the foundation for far-reaching reform of the World Bank as the premier global financial institution supporting sustainable global development and poverty reduction."  Among other things, it identifies the provision of "global public goods" as one of the three main challenges facing the World Bank:

Supporting the provision of global public goods: The report identifies global public goods, such as environmental protection, response to epidemics, protection of global financial stability, etc., as an important challenge, but does not specify what role the World Bank should play and what reforms are needed for it to play this role. In terms of funding, it will be important to explore making the World Bank the principal conduit for global public goods funding.

Talk about public goods.  How might this idea extend to "global public goods"?  Explain one other global public good not mentioned in the article, and why you think it is a global public good.  Why might it be important for the World Bank to become "the principal conduit for global public goods funding"?

Elasticity of crude oil

Ok, so we can't be at a school in the Gulf and not have a blog option on oil:

Oil is a dense, convenient form of energy, an essential ingredient of the modern economy. Testimony to its importance is the value spent globally on oil, around 3% of global Gross Domestic Product (GDP) on a trend basis. While there are substitutes for oil, these must be traded against their lower energy density and inconvenience. The key linkage therefore is price. By implication if oil ceases to be cheap, at least in a relative sense, its attractiveness is diminished.

Oil cycles tend to be resilient because both supply and demand are inelastic - at least in the short term. With a lead time between discovering oil and producing of just less than a decade, many of the projects we see coming to fruition today were conceived in an environment of sub-$30/bbl oil! Further, usage of oil is so prevalent in modern society that entire manufacturing and infrastructure systems are built to deliver it. The initial response to increased prices is thrift, with secular changes only possible once there is widespread belief that these high prices are sustainable and there is regulatory intervention.

Explain why the supply and demand of oil are both inelastic in the short-term.  What does this mean, practically, for consumers and/or the oil industry long-term?

Elasticity of pet food

Is your pet very important to your family?  Nestle is counting on it:

Muscovite Yana Repina gave up sushi dinners and cut down on salmon and brie so she could afford to give her cat Busya its preferred variety of Nestle SA pet food. “I’ve tried to buy cheaper brands, but she refused to eat those,” said 34-year-old Repina. Her cat devours a can of Nestle’s Purina Gourmet a day, costing Yana about 50 rubles ($1.17), three times the price of the low-cost Friskies label, which she says her pet won’t eat.  Even in Russia, where the economy contracted a record 10.9 percent in the second quarter, consumers find it harder to cut spending on pets than on themselves and their families. Nestle’s nine-month sales of petcare products rose at more than twice the rate of overall food and beverage revenue.

According to Euromonitor, the value of dog and cat food sold in North America will have risen 5.2 percent a year on average from 2004 to 2009, double the rate of packaged foods for humans such as rice and yogurt. Pet food sales will probably gain 2.5 percent on average each year through 2014, the market researcher forecasts, compared with 1.1 percent for packaged food.  Consumers’ reluctance to cut spending on their pets enabled Nestle to increase prices by more than any product.

Wow!  I think that's CRAZY!  What does this article imply about the price elasticity of pet food?  How do you know?  Economically justify your claim.  What does this article imply about the income elasticity of pet food?  How do you know?  Economically justify your claim.