The pros and cons of Walmart.

A fantastic article highlighting how deregulation has led to increased market concentration in the retail and food manufacturing sectors in the US and pretty much around the world.  It can be argued that monopsony power can increase econonic welfare through reduced prices for the consumer and higher profits for the monopsonist, but at what expense?  Depressed wages of the workers in the supply chain and possible reduced quality of products as suppliers attempt to cut costs.

Should government intervene and regulate the market to protect smaller businesses either competing or supplying the monopolist/monopsonist?  Is it in the interests of countries like India to let the likes or Walmart and Tesco have free reign?

A good opportunity to develop your chains of analysis and evaluation points.

Breaking up Walmart?

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Would you buy an Huawei?

The potential answers to the above question, once explained are revealing.  Why would you prefer an Apple or Samsung phone or are you more cost sensitive?  Huawei has successfully broken into the oligopolist smart phone market based on a low price strategy.  But it is not just phones that Huawei produce: a third of the population of the world indirectly use an Huawei product.  But just as a strong brand acts as a barrier to entry, can a country ‘brand’ prevent a company developing a strong brand identity? China has long been associated with low cost and poor quality products.  If money was not an issue would you really buy a Huawei phone? Innovation in processes and products can lead to significant average cost reductions leading to increased competitiveness and market share.  Chinese firms are now the third largest owners of patents behind the US and Japan.  Has China unleashed ‘the gales of creative destruction’?  Below is a podcast from the BBC’s Business Daily that explores the change occurring in China with its focus on Huawei.  Plenty of chances to practise your chains of analysis and diagrams.

Coal is not the only monopoly India wants to break up…

Apparently, a lot is being split or broken up… As Mashiat posted earlier, the state run monopoly Coal India is being broken up, but that is not the only vital industry being broken up, – The Indian government, acting on Air Force demands, has offered to spend $12 billion to encourage private firms to establish an aircraft manufacturing facility — a move that would break Hindustan Aeronautics Limited’s (HAL) monopoly on aircraft manufacturing.

The reason for this potential break are years of delays on several essential projects, possibly due to the diversification. HAL is involved in the design of fighters, transports, trainers and helicopters, avionics and engines, which meant a decline in focus, decrease in efficiency and a delay in projects.

Many experts have expressed their views on the issue, eluding to various concepts we have discussed in class. See if you can figure out what these concepts and terms are…


“It is absolutely essential to set up an additional military aircraft facility here, as HAL is overloaded for the next 10 years and has become too unwieldy,” defense acquisition expert Miral Suman said.

Vivek Rae, former director general (acquisition) in the MoD, said, “India sorely needs aircraft manufacturing capability in the private sector. We cannot afford to put all eggs in the HAL basket.”

Subhash Bhojwani, retired Air Force air marshal, agreed an additional manufacturing facility is needed, but said HAL should be made more commercial.

“HAL is into the design and contemporary manufacture of fighters, transports, trainers and helicopters, as well as avionics and engines,” he said. “It is possibly the only company in the world to be so diversified. However, while this may sound good in a book of world records, it isn’t good as a commercial model.”

Defense analyst Amit Cowshish, a retired Defence Ministry bureaucrat, said the objective should be “not to create an entity that could compete with HAL but to have additional capability in India to manufacture aircraft so that the requirement, both of the military and civil sectors, could be met in a more cost-effective manner and in shorter time frames. Of course, competition would help in improving HAL’s efficiency.”

Sujith Haridas, deputy director general of India’s industry lobbying agency, the Confederation of Indian Industry, said, “It is very much desired to have an additional manufacturing facility, but one should not ignore that it takes several decades of consistent investment and efforts to create a mammoth system integrator like HAL.”

The continued break up of Indian monopolies

 

Breaking up for good

Mining for coal? Not any more. The Indian government  is currently looking to abolish the state run monopoly Coal India. Now this action is not just to increase the competition within the coal industry,  but to also ensure that the Indian society , especially in the rural areas has access to coal derived power. The major causes for this disintegration are the fact that Coal India has to import expensive coal due to the scarcity of local coal,the coal mines are leased to companies in the cement and steel industries and that the government has to subsidise kerosene to areas with no power. By breaking up Coal India, the government is planning to reduce its trade deficit, increase innovation and efficiency amongst firms, lower power prices to customers, lower price inflation and ensure accessible reliable power  to remote rural areas. Although it seems like this is a win win situation , let us remind ourselves that by breaking up a natural monopoly, the firms will face very high start up costs that can lead them  becoming  insolvent. Moreover, there seems to be a lot of corruption regarding the accessibility of power and the government has to take careful measures to ensure that rural power becomes a reality. Check out this interesting article and try to come up with your own evaluations.

The break up of Indian Coal

-Mashiat

HP Splitting into two

The illustrious Hewlett-Packard technology firm is going to split into two different companies – one specialized in its computer and printer manufacture, and the other producing its corporate hardware and services. However, is this split completely advantageous? Although the split is aimed at improving HP’s adaptability to the market, the company will lose significant economies of scale and scope. Moreover, the loss of thousands of jobs threatens a major social cost in an economy which seems to have begun recuperating from the 2008 recession.

See if you can identify the different economies of scales and scopes lost, and any other costs. Try and come up with your own evaluation on whether HP should split.

Hewlett-Packard to split into to companies

HP to split

Bigger isn’t better (including other company’s who have split)

– Krish

Air France Pilots on Strike

Competition from lower-cost airlines such as EasyJet and Ryanair has redirected the demand from pricier Air France to its cheaper counterparts. As a result, the beginning of this year saw Air France faced with a net loss of €614 million. In a move to become more cost-effective, Air France had planned to shift its focus on to the cheaper Transavia Airlines. Unfortunately for the pilots (who mind you, appear to earn €160,000 yearly,) this low budget airline would mean lower pay and welfare benefits- effectively leading to the longest strike Air France has seen since 1998. Evidently, a move to become more cost-effective has backfired and the airline is losing €20 million a day due to the strikes.

http://www.businessinsider.com/air-france-strike-implications-2014-9

http://www.businessweek.com/articles/2014-09-29/europe-gets-fed-up-with-striking-pilots-at-air-france-luftansa

AR, MC and Scottish independence.

Scottish independence is an emotive subject and the results of the referendum this coming Thursday will potentially have huge ramifications for the future of Scotland and UK economy. As economists we attempt to remain objective in our analysis and evaluation of events and one could argue that the debate on Scottish independence is awash with normative statements such as  Alex Salmond stating independence would make Scotland better off.

The article below analyses and evaluates the potential pitfalls of an independent Scotland based on the premise that oil will be able to sustain economic development. David Smith argues that the marginal cost of producing a barrel of oil has increased 500% in the last 10 years while revenues have fallen and are predicted to keep falling for the foreseeable future, (A2 students should be able to illustrate this diagrammatically).

What implications does this have on fiscal policy?  Will the Scots be able to continue to spend 14% more per head than the remaining UK population?

Then there is currency.  Will an independent Scotland be able to survive without a ‘lender of last resort’ or will the EU club be too much of a temptation to turn down (if indeed their application is successful)? And if an application is successful what really is the difference in being governed from London or Brussels?

Scottish Independence