Archive forcompetitive market

E-reader Market In Relation To The Rise of Apps and iPads

http://www.cnn.com/2012/09/06/tech/mobile/ipad-kindle-comparison/

https://www.wired.com/2015/04/kobo-new-ereader/

An E-reader is an appealing good because it gives consumers the opportunity to gain access to numerous e-books and there are even other features such as free samples of novels, the ability to highlight quotations, and some e-readers are able to even lend out books among users. The biggest competitive advantage regarding E-readers would have to be its usefulness – it is very portable and allows consumers to have the access to countless books. However, in actuality they only need to carry one “book” (the E-reader) around with them, which is not only far easier, but also more sustainable.  It is worth noting the undeniable influence that technological innovation has had in this market; for example, some consumers do not technically own a traditional E-reader, but use their Ipads (or tablets) to download virtual eBooks. E-readers can appeal to people from all ages and backgrounds since reading is a timeless activity and can serve many purposes ranging from educational to enjoyment. E-readers are not necessarily cheap, but the goal is to be able to invest in one for at least several years.

There has also been the entry of more substitute products, such as the Kobo and Ipad minis. These specific substitute products also illustrate a decrease in prices since they are both cheaper alternatives than previous models (Kobo is a cheaper alternative to Amazon’s Kindle, while Ipad minis are cheaper and more portable than Ipads); therefore, the demand of the E-reader market goes down.

It is necessary to note apps’ dominance in the technology industry; in fact, Apple’s App Store now offers over 225,000 apps for sale. This is actually detrimental to the demand for E-reader devices (even including Ipads) because now consumers are less willing to invest in purchasing these types of products, since they could just easily download apps on their smartphones where they can utilize virtual eBooks. Ultimately, the most influential shock to this market was the apps because it changed the way people access eBooks because now they do not even always see a need to purchase an E-reader device, or even an Ipad, anymore.

 

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A380 Super-Jumbo

The Airbus A380 is the worlds largest passenger plane and was thought to be the future of aviation. Emirates, a Dubai based airline, owns 86 of these monster jets which equates to almost half of the world’s supply. Demand for flights through Dubai, the “super-connector” airport once seemed insatiable. Positioned halfway between Asia and Europe, the airport offered connecting flights to Cape Town, Cairo, Moscow and Shanghai. With soaring passenger volume through Dubai high demand for flights airlines such as Emirates purchased a string of Airbus A380s beginning in 2008 attempting to maximize profits through airline ticket sales.

Over the past year, problems have mounted. Low oil prices have impacted the neighboring economies and reduced regular regional travel. Also terrorism in cities and airports have dampened tourism.

This external shock has caused a decrease in demand for flights out of Dubai. This decrease in demand has caused Emirates to slash ticket prices in order to fill the seats on the Airbus. Profits have decreased also The Economism.com states that “earnings have tumbled by 75%.” Airbus is on the hunt for new buyers in big markets where demand is far greater such as China and Japan.

 

http://www.economist.com/news/business/21710850-three-years-ago-emirates-rescued-a380-aeroplane-its-own-problems-now-cast-doubt

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Switching Cost Of Phone Providers

The article, The High Cost Of Loving Your Phone, by Damon Darlin outlines the ideas of how firms in oligopolies and monopolistic competitive markets use high switching cost to ensure that it keeps its customers from switching from itself and to another supplier. It does so by showing that consumers have a hard time switching from one phone provider to another because A, the consumers has non-transferable messages, photos, and a number that holds ‘priceless’ memories, or B, there is a social standard that a customer may be switching from. One the contrary, It also shows an example where a switching cost is eliminated (previously consumers weren’t able to keep their phone number when they switched, but now they are able to), and how a large majority of individual firms responded (They lowered their prices because now the market resemble more of a competitive market rather than a monopolistic competitive market). Ultimately, Loving one’s phone is costly because of the high switching cost associated with phones, and the fact that a new and better phone that a consumer may wish to have (but can’t because of switching cost) may be release from a another providers.

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Donald Trump’s proposal to interfere free international trade: a 45% tariff on Chinese exports

When Donald Trump was being interviewed by the New York Times in January 2016, he said that he would add a 45 percent tariff on Chinese exports to the United States. However, are benefits from the market with this tariff more than those from market without tariff?

Chinese low-priced goods producers are indeed strong competitors for the local American producers. According to tariff shifting figure, the price of Chinese goods will be much larger so that it would be easier for American companies to compete. In addition, the money gone to government’s pocket can be used to create more manufacturing jobs for local people.

However, as Chinese goods becoming more expensive, low-income Americans who usually purchase these goods have to raise their consumption. In addition, according to the concept we learned in the beginning of this semester (If cost goes up, supply curve will shift up which causes price going up), prices of productions that are made from Chinese materials are also going to increase. Moreover, as the former journal states, China also holds a significant amount of stock of US Treasury bonds, so that China could push back from dumping those. If not, China can also impress a tariff in exports from the United states. Therefore, from the perspective of American residents and market participants, these disadvantages are more crucial than the benefit of inserting a 45% tariff on Chinese exports.

http://www.politifact.com/truth-o-meter/article/2016/jun/21/donald-trump-has-floated-big-tariffs-what-could-im/
http://www.nytimes.com/politics/first-draft/2016/01/07/donald-trump-says-he-favors-big-tariffs-on-chinese-exports/?_r=1

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Brexit and automation

Britain’s decision to leave the European Union is expected to reduce the supply of labor and raise labor costs (wages). In response, UPS has announced that it will substitute capital for labor and move towards greater automation at plants in the UK.

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Top video game prices may increase in price

link: http://www.nbcnews.com/id/3078404/ns/technology_and_science-games/t/top-video-games-may-soon-cost-more/#.WA0Dw_orJPY

Article published by Tom Loftus for msnbc.com in June 2013

Constantly evolving development costs of video games are predicted to increase the price of top-sellers. There are a multitude of increasing costs that go into video game development – more complicated coding, more development team members, higher quality team members, etc. – that derive from the need to meet the capabilities of increasingly sophisticated gaming technology. These higher input costs lead to a decrease in supply (less quantity supplied and greater price willing to sell for).

Another concept that is presented is the “life cycle” model, which illustrates the price fluctuations of gaming consoles, which are complements to video games. A few years after a console’s initial release, when the development teams are able to shift to production of a new console with more sophisticated technology, the price of the initial console is significantly lowered. This is when over 50% of console sales occur. Thus, during this time, lowered sale prices result in a higher demand (greater quantity demanded and greater price willing to buy for).

The stated average cost of a Triple-A game (games with the highest development budgets and levels of promotion; expected to be high-quality bestsellers) is stated to be $49.99/game. These are the games that are expected to rake in over 50% of game sales. The decrease in supply and increase in demand should result in an unknown new equilibrium quantity and a greater equilibrium price, what is estimated to be closer to $60/game. However, game producers are not raising their prices because they believe that as long as the quantity demanded increases, then they’ll be able to sustain their market. Demand has been shown to increase considerably over the years as gaming grows into mainstream media and the market expands, so producers aren’t wrong in their assumption of increasing consumer demand. However, they are naïve in that they do not recognize that buyers would also be more than willing to pay a raised price for a higher-quality game, and that sustaining or lowering prices might signal to buyers that the game is of a lesser quality. The resistance to raise prices has resulted in a shortage, since quantity demanded is greater than quantity supplied.

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Indonesian Airline Price Floors

After years of Indonesian Airlines suffering from various accidents, the Jakarta Post came out with an article describing the Indonesian government’s recent debate to change price floors within their airline industries. But what do price floors have to do with the safety of Indonesian Airlines?

By installing price floors, governments make it illegal for products to be sold underneath the regulations. Price floors would create competition between airlines to offer passengers the best quality; by creating price floors within their airline system, Indonesia could be insuring safer and high quality carriers, resulting in less accidents. The current floor calls that airline fees must be within 40% of the already established price ceiling, but the CEO of Air Asia is calling for a 30% reduction of that minimum price.

Some Indonesian economists still argue that accidents will continue to occur despite the price floor, and that more extensive measures must be taken. But whether safety is completely insured or not, the floors would still prevent “predatory pricing” from the lower-end airlines. Regulating prices doesn’t always result in killing healthy competition, but the industry will continue to make their argument until the government makes a final decision.

 

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China Removes Price Ceilings from Most Drugs

Since the year 2000, the Chinese government has implemented a price ceiling on most drugs after many complaints from Chinese consumers about prices being too high. Recently, however, the government has decided to eliminate the price ceiling to allow the price to be set by a market-driven pricing system. This is done to encourage more competition and better medicine as a whole for the pharmaceutical industry. The government will instead conduct drug inspections, focusing on where competition is lacking to regulate prices. They do not expect there to be any significant changes in drug prices, because most of the medicine impacted is sold through hospitals regulated by more local government.

Because the market is still being regulated so heavily, it is unlikely that removing the price ceiling on most medicine will impact the economy in any serious way. The point of the price ceiling is to keep the medicine costs from becoming too high, but since it has been in check for a decade and a half, there is some room to let the market fluctuate and create competition. The Chinese government is loosening its grip on different sectors of its market in a safe way. By having local government and continued lax regulation on medicine, the market price should even out to increase competition without becoming so expensive that the demand shoots down.

Source: http://www.natlawreview.com/article/china-removes-price-ceilings-most-drugs

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Negotiations over Iranian oil production falls through!

With oil prices still at a low,producing countries are desperate to stop the excessive flow, while at the same time protecting their assets. The Iranian government is a chief rival of many other oil producers, mainly Saudi Arabia. This article brings to light some of the complex economic relationship oil has to Middle Eastern states, the Saudi government’s income is mainly based on their oil exports (which they can do much cheaper than many other countries.) Unfortunately for the Saudi’s the Iranian government is unwilling to slow down their production as their industry is attempting to return to pre sanction output levels. The low oil prices hurt oil producing Middle Eastern states and so it is in their best interest to focus on increasing the price per barrel of oil. The easiest way to do this is to move the supply curve leftward by decreasing the amount of oil in the market. Unfortunely oil is such an important export that these countries are unwilling to sacrifice enough production to slow oils falling price. From 2014 to 2015 oil fell almost 30 dollars per barrel in an unprecedented fall. Only time will tell if these country’s will be able to slow oils free fall.

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WSJ Coffee Substitute Prices

The Wall Street Journal  has an article about how the price of the one kind of coffee bean, robusta coffee beans, is increasing, and the price of another, the arabica coffee bean, is decreasing. As of right now the price of the robusta coffee been is less than the price of the arabica coffee bean. This means that the two prices of the coffee beans are growing closer, and therefore many producers of coffee and investors are closely watching and waiting for the prices to potentially be equal or pass each other. In that case, people will switch over to the arabica, as it would be the cheap of the two coffee beans.  This example shows the changing prices of substitutes (as we have talked about in class) and how it affects the supply and demand curves of each kind of coffee bean.

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