A Level Economics 42: Evaluating Monopolies

Benefits of Monopoly:

1. Economies of Scale and Natural Monopoly: Example: The distribution and supply of water in a city can be a natural monopoly. Building multiple water supply systems would be costly and inefficient due to duplication of infrastructure. A single water utility company can achieve economies of scale and provide water to the entire city at a lower cost per unit.

2. 
   

3. Price Discrimination: Example: Software companies often use price discrimination by offering different versions of their products at various price points. Some versions may have limited features and are priced lower, while premium versions with more features are offered at higher prices. This allows the company to cater to different customer segments effectively.

4. 
   

5. Lack of Contestability: Example: Satellite communication services can be a market with limited contestability. Launching satellites and establishing infrastructure requires significant investments, making it challenging for new competitors to enter the market and compete effectively.

Costs of Monopoly:

1. Reduced Competition: Example: Microsoft's historical dominance in the operating system market led to limited competition. During the 1990s and early 2000s, there were concerns about the lack of viable alternatives to Microsoft Windows, potentially limiting innovation and consumer choice.

2. 
   

3. Potential for Predatory Pricing: Example: In the airline industry, a dominant airline may engage in predatory pricing by temporarily reducing fares on specific routes to drive out smaller competitors. Once competition decreases, the dominant airline can increase prices in the long run.

4. 
   

5. Unfair Trade Practices: Example: Some multinational corporations have been accused of engaging in unfair trade practices, such as dumping products in foreign markets at lower prices than in their home markets. This can negatively impact local competitors and raise concerns about fair competition.

6. 
   

7. Consumer Welfare Concerns: Example: In pharmaceuticals, a monopoly on a life-saving drug may lead to higher prices, making it less affordable for patients who need the medication. Lack of competition can limit access and affordability for essential goods and services.

8. 
   

9. Innovation and Incentives: Example: A dominant tech company with a virtual monopoly in a specific market may be less incentivized to invest in research and development compared to a competitive environment where it must continuously innovate to stay ahead.

Overall, the evaluation of monopolies must consider the specific industry and its characteristics. While monopolies can offer benefits like economies of scale and price discrimination, there are also concerns about reduced competition, anti-competitive practices, and potential negative effects on consumer welfare and innovation. Policymakers and regulatory authorities play a crucial role in ensuring a balance between encouraging efficient natural monopolies and safeguarding competition to protect consumers and promote innovation.

Sex-for-rent is the hidden danger faced by more and more female tenants

Penny Anderson in The Guardian

The private rented sector is broken and house-hunting is a dreadful task fraught with abject desperation. Just when you thought it couldn’t get any worse, to the list of nasties (the grasping letting agents and truculent and capricious buy-to-let owners) whom tenants confront can now be added creepy, predatory rentiers offering homes in return for sex.

In the weird swamp world of online portals, everything is so much more dangerous. Female tenants are especially vulnerable when flat-hunting, and some landlords are quite open about what they expect, while others hide in plain sight. The basic act of flat-hunting often involves wandering into an unfamiliar neighbourhood, then entering a flat for guided viewings with strangers: a man you have never met before, who could assume or imagine that signing a rental agreement entitles him to sex. Remember, too, that this man might ultimately be in possession of the key to your home, and, if he’s a live-in landlord, could occupy the adjacent bedroom. 
Some ads are overtly soliciting sex, while others are coy. During a bizarre viewing tour of a tiny flat with a friend, the drunken landlord, having first claimed that he was moving out to live with his girlfriend, changed tack. He explained: “She’s not really my girlfriend and would it be OK if I visited?” I left.

An especially odious case involved a friend who moved out after her landlord offered to reduce the rent if she were “nice to him”. He then accused her of prudery and had the effrontery to pursue her for the income he lost after she escaped his lair. (And frankly, it was a lair, wasn’t it?)

Let’s be clear: this isn’t an issue about consensual sex or self-empowered, independent “sex-workers”. It is exposed women seeking a safe place to live, who are then ruthlessly compelled to have sex with their landlords in order to keep a roof over their heads. Many are trying to escape homelessness – and encounter vile men offering to house vulnerable women in return for sex. And by vulnerable, I don’t just mean women who are poor, but also exploited asylum seekers, those fleeing domestic violence, care leavers and victims of “the right to rent”, where potential tenants must show documents proving they have the right to remain in the UK.

I endured some troubling encounters when using a website popular with flat-hunters, having placed a carefully worded flat-wanted ad. One response sounded positive, but when I called, the landlord was evasive about terms, thought my self-description (“professional female”) odd, and then asked if I wanted “male company”. I hung up. To my amazement, a male friend found this hilarious, doubted my story, then checked to unearth a whole new world of abuse of women (and some men) simply looking for a home.

Yet still coercive homes-for-sex is too often seen as bit of a laugh. It isn’t. It’s not merely undermining but hazardous. A friend home-hunting with her toddler was contacted by one man who offered her use of his home, eventually explaining that he didn’t require rent; rather he “enjoyed light, consensual anal intercourse”. She was both terrified and appalled.

The private rental sector in areas of high demand (especially London) is growing sleazier by the day, and many men are brazen about what they expect. A supporter of tenant support group Acorn shared one man’s response to a female flat-hunter: “Can you pay with sex twice per week?” In a moment of dark levity, a male commenter offered to provide the sex, reasoning this probably wasn’t what sleazebag-guy was expecting.

Many platforms seem slow or unwilling to deal with such abusive posts, or else tacitly tolerate them. Shelter has picked up on the situation, noting the power imbalance and the distorted sense of entitlement: man provides home, man deems himself entitled to sex with isolated, scared, sofa-surfing young woman lacking genuine alternative options.

The answer is of course for offenders to cease and desist. But failing a mass changing of ways and renunciation of sordid sexual bullying, it seems women must take steps to ensure our own safety. So, when flat-hunting, do not go alone. Always let somebody know where you are. If possible, arrange a guided viewing with an agent (if an agent is being used to let the property). And if you are being coerced into sex, inform the police.

The internet has opened up a whole new fresh hell of sleaze and importuning. On the plus side, it’s also excellent for naming and shaming. And hopefully those women so desperate that they have felt as if there were no choice but to submit can be empowered to summon enough courage to report these abusers.

Mark Blyth - The man who predicted Brexit, Trump and Renzi explains it all

Blyth explains Brexit, Trump, Corbyn and the fall of Renzi

Blyth on Austerity

Opec bid to kill off US shale sends oil price down to 2009 low

Larry Elliott in The Guardian

Oil falls by $2 a barrel with energy shares as Opec refusal to stop flooding the market with cheap oil and likely US rate hike sends Brent crude tumbling

 

Oil rigs in western North Dakota, US. Opec plans not to cut output aims to kill off the threat from US shale oil by making it deeply unprofitable. Photograph: Matthew Brown/AP


Oil prices have slumped by 5% after the latest attempt by Saudi Arabia to kill off the threat from the US shale industry sent crude to its lowest level since the depths of the global recession almost seven years ago.

Signs of disarray in the Opec oil cartel prompted fears of a global glut of oil, wiping $2 off the price of a barrel of crude on Monday and leading to speculation that energy costs could continue tumbling over the coming weeks.

Shares in energy companies lost ground as the impact of the drop in oil prices rippled through European stock markets. Prices of other commodities also weakened following disappointment among traders that Opec had decided late last week to keep flooding the global market with cheap oil.

Iron ore continued its steady fall and finished the latest session at $38.90 per tonne, squeezing profit margins to the bone at even large producers such as Rio Tinto and BHP Billiton, whose shares fell sharply on the Australian stock market on Tuesday.

The consultancy Capital Economics tweeted: “#Oil sell-off after #OPEC makes even ECB look good. Better to have announced something, even if less than hoped for, than nothing at all...”

A barrel of benchmark Brent crude was changing hands for less than $41 a barrel in New York on Monday night after Opec – heavily influenced by Saudi Arabia – did nothing about a market already seen as saturated.

US light crude, which tends to trade at slightly lower levels than Brent, recorded similar falls, dropping from just over $40 a barrel to less than $38 a barrel.

Both Brent and US light crude were at levels not seen since early 2009, when the collapse of US investment bank Lehman Brothers triggered the most severe recession since the 1930s.

As recently as August 2014, Brent stood at $115 a barrel, but in 16 months its price has been more than halved in response to a slowdown in China and other emerging market economies, and the end of oil sanctions against Iran.

Global supply of oil is currently thought to be up to 2m barrels per day higher than demand, with traders fearing that Opec’s refusal to cut production despite the financial pain it is causing its members’ economies will lead to a still greater glut of crude. Venezuela, in particular, is thought to be suffering badly as a result of the drop in oil 

prices.

  Brent crude, from 2005-2015. Photograph: Thomson Reuters

The fall, if sustained, will lead to lower inflation in oil-consuming nations through the knock-on effects on petrol, diesel, domestic energy prices and the cost of running businesses.

Lower crude prices may also delay or limit increases in interest rates. The Bank of England has already accepted that inflation – which stands at -0.1% – has stayed lower for longer this year than it anticipated.

Analysts believe the slide in oil prices has come too late to persuade the US Federal Reserve, America’s central bank, to delay an increase in the cost of borrowing later this month, adding that the prospect of the first tightening of policy from the Fed since 2006 was an added factor in crude’s decline.

The prospect of higher US interest rates has led to the value of the US dollar rising on foreign exchanges; since oil is priced in dollars that has led to a fall in the cost of crude.

Markets had been expecting Opec to announce a new ceiling on production after last Friday’s meeting, but analysts at Barclays said the lack of any curbs in its announcement was a sign of discord.

“Past communiques have at least included statements to adhere, strictly adhere, or maintain output in line with the production target. This one glaringly did not,” they said.

Saudi Arabia needs oil prices of $100 a barrel to balance its budget, but as the world’s biggest exporter of crude it is gambling that the low price will knock out the threat posed by so-called unconventional supplies, such as shale.

The chief executive of Saudi Aramco, Amin Nasser, said at a conference in Doha on Monday that he hoped to see oil prices adjust at the beginning of next year as unconventional oil supplies start to decline.

In a sign that US production could dip, Baker Hughes’ November data showed US rig count numbers down month-by-month by 31 to 760 rigs.

The fall in oil prices helped wipe almost 1% off share prices in New York. Wall Street’s Dow Jones industrial average was down more than 160 points in early trading, with Chevron and Exxon both losing around 3% of their value.

In London, Shell’s share price was down 4.5% while BP lost 3.4% of its value as early gains in the FTSE 100 were wiped out. The Index closed 15 points lower at 6223.

Powerful lobbyists and fawning ministers are corroding society

The lack of regulation and legislation for which wealthy lobbyists press is mostly a form of welfare for big business

• 
• • Will Hutton
  • The Observer, Saturday 11 January 2014 19.07 GMT

The UK drinks industry lobbied vigorously against a minimum price. Photograph: Johnny Green/PA

It was a classic exchange. Neil Goulden, chair of the Association of British Bookmakers, did his best to defend the indefensible. We must place the problem of addictive fixed-odds betting machines in context, he told Radio 4's Today programme last week. They constitute only a small part of the industry's total revenues; there are very few problem gamblers. Britain has the best regulated and most socially responsible gaming industry in the world. Obviously voluntary efforts, which had already achieved much, needed to go further. But there was no need for more intervention.

Later, in the House of Commons, the prime minister, keenly aware that Ed Miliband has thrived when combining the cost of living crisis with example after example of predatory capitalism, was not going to allow himself to be painted as the friend of the betting and casino industries. But equally, he had to keep alive his deep conviction that regulation, always " burdensome", should be avoided as a matter of principle and, if conceded, kept as minimal as possible.

Yes, he understood the leader of the opposition's concern that ordinary high-street betting shops were being turned into mini-casinos via these machines and were proliferating in some of the most deprived parts of the country. But a "review", he claimed, of unspecified provenance was under way. There was no need to support the Labour party's proposals. The issue was kicked into the long grass.

Last week witnessed a procession of examples where successive industries demonstrated their unnerving and effective capacity to block efforts at making them work more in the social and public interest. The British Medical Journal revealed in a powerful article that the UK drinks industry had enjoyed no fewer than 130 meetings with ministers in the run-up to last July's abandonment of the commitment to set a minimum price of 40p for an unit of alcohol. The evidence from Sheffield University's alcohol research department is unambiguous: the higher the price, the less is consumed, lowering crime and death rates alike.

Yet purposeful intervention even for these high stakes is not what Conservative ministers or rightwing thinktanks believe in. Better a world of voluntary codes of practice and forums promoting responsibility than anything with teeth that might "burden" business or – shedding crocodile tears – "penalise the poor". Indeed, it was in precisely those terms that the health secretary, Jeremy Hunt, discussed minimum alcohol pricing with Asda chief executive, Andy Clarke. In case we were in any doubt, the public health minister, Jane Ellison, spelled out the Conservative position, preferring a " collaborative approach on public health" in a "voluntary way" in which business is a "partner".

Collaboration, voluntary, partnership and social responsibility are good words. Regulation, legislation, quotas and tax are bad words, for, it is alleged, these are just the sort of things to raise prices and disadvantage hard-pressed consumers. Thus already the sugar industry, confronting the newly created Action on Sugar Campaign to lower the sugar content in food, is reaching for the same Goulden armament. British housebuilders, fighting off proposals to landscape new developments so that rainwater runs off naturally, plead that house prices will rise as a result, and thus four years after the 2010 Flood Defence Act, requiring such development to improve our much-depleted flood defences, there is still no agreement.

Part of the problem is that in the indiscriminate drive to create a smaller government, the Department of the Environment, reeling from cuts, has not the manpower to follow through on legislation. But the problem is made worse because the environment secretary, Owen Paterson, believes, like Jeremy Hunt at health and many other colleagues, that essentially their job is to do whatever business says.

Obviously in a capitalist economy, private business is a principal driver of growth. Great entrepreneurship in action is fabulous, but crucially it never emerges from private action alone. There is always some pubic agency involved in, and often leading, the risk-taking. Yet the fiction of our times is that all business is entrepreneurial, all business aims to behave well, all business accepts that it should pay the social costs of its activities and that any effort to shape business activity is counterproductive. These are the propositions that underpin the stance of the business lobbyist – and of the minister welcoming him or her. The public, if it only knew, would surely despair.

The lack of regulation and legislation for which the business lobbyists press is rarely to support entrepreneurship; in most instances, it is a sophisticated form of corporate welfare. It will not be British bookmakers who pick up the costs of addictive gambling in welfare bills and housing benefit; no drinks company will foot the NHS's bill for alcohol-related illness or police bill for crime; no sugar company the bill for obesity. Housebuilders will cheerfully direct rainwater cheaply into the sewerage system and the water companies will then raise water charges and expect state guarantees for improving the system.

The deal is clear: pass on the maximum cost to the state, minimise one's own obligations including tax payments, and insist anything else will cost jobs and penalise consumers. Corporate welfare works. Bookmaker William Hill, for example, declares £293m profit on a turnover of £1.3bn, and pays a mere £48m in tax. Drinks multinational Diageo pays £66m of UK tax on its £1.75 bn of UK turnover. Executive pay is stunning; indeed, it even provoked a shareholder revolt at William Hill last year.

The low regulation lobby is in effect creating high-return, low-risk business fiefdoms largely free of social and public obligations. Worse, shareholders and investors set these returns against what they might expect investing in frontier technologies and innovation. Why do that when you can make more certain and higher profits in pay-day lending, bookmaking or the drinks business? The Cameron-Osborne-Hunt-Paterson mantra leads straight to a low innovation economy and a high-stress, low-wellbeing society, while offering unnecessarily high returns to those at the top.

Reality is very different. Business is part of the society in which it trades. Regulation and legislation, far from burdens, are crucial grit in the capitalist oyster. They are proposed in our democracy because they will reduce public and social costs that otherwise society has to bear. By obliging business to accept the costs it creates, it raises genuine innovation. It is time to call time. We don't want ministers acting as surrogate corporate lobbyists. We need them to fashion a new compact between business and society.