Justice Rohinton Nariman speaks

 

Ram Jethmalani Centenary Memorial Lectures

 

A Level Economics 34: Understanding Market Structures

The structure of a market depends on the number of firms operating within it and their ability to enter and exit the market freely, which is known as contestability. Here's an explanation with definitions and examples:

Number of Firms: The number of firms in a market refers to the total count of independent businesses competing with each other to sell similar or substitute goods or services. The number of firms influences the level of competition and market concentration, which, in turn, affects market structure. Market structures can range from a monopoly (one firm) to perfect competition (many firms).

Example: A market with only one telecommunications company providing phone services would be a monopoly. In contrast, a market with multiple telecommunications companies competing with each other would reflect a more competitive market structure, such as oligopoly or perfect competition.

Contestability (Ability to Enter and Exit Markets Freely):Contestability refers to the ease with which new firms can enter a market and compete with existing firms, as well as the freedom for existing firms to exit the market without significant barriers or impediments. The degree of contestability affects the potential for new entry and the level of competition within a market.

Example: In a market with low barriers to entry and exit, such as the smartphone app development industry, new firms can easily enter the market and offer their apps. If these firms can compete effectively with existing app developers, it indicates high contestability and a more competitive market structure.

The Relationship:The number of firms and contestability are interrelated and jointly determine the structure of a market. When there are a large number of firms and low barriers to entry and exit, it promotes competition and leads to more competitive market structures, such as perfect competition or monopolistic competition.

In contrast, when there are a small number of firms and high barriers to entry and exit, it restricts competition and can result in more concentrated market structures, such as oligopoly or monopoly.

Example: Consider the market for coffee shops in a particular city. If there are numerous coffee shops, and new coffee shops can enter the market easily and compete with existing ones, it indicates a highly contestable market with many firms. This scenario would align with a competitive market structure, such as perfect competition or monopolistic competition.

However, if there are only a few dominant coffee shop chains and significant barriers to entry, such as high startup costs or exclusive lease agreements, the market would have low contestability. This would result in a less competitive market structure, such as an oligopoly or even a monopoly if one chain has a dominant market position.

In summary, the structure of a market depends on the number of firms operating within it and their ability to enter and exit the market freely. The presence of many firms and high contestability leads to more competitive market structures, while fewer firms and low contestability can result in concentrated market structures with less competition.

--- Structural and Behavioural Barriers to Entry

Key Terms:

1. Barriers to Entry: Barriers to entry are obstacles or restrictions that prevent new firms from entering a market and competing with existing firms. These barriers can be both structural and behavioral in nature.

2. 
   

3. Structural Barriers to Entry: Structural barriers to entry refer to inherent characteristics of a market that make it difficult or costly for new firms to enter and establish themselves. These barriers are typically long-term and relate to the market's fundamental structure.

4. 
   

5. Behavioral Barriers to Entry: Behavioral barriers to entry arise from the actions of existing firms in a market to discourage or limit new entrants. These barriers are often strategic and can be influenced by the actions of dominant players in the market.

Examples and Distinction:

1. Structural Barriers to Entry:

a. Economies of Scale: When existing firms in a market benefit from economies of scale, new entrants may find it challenging to match the cost efficiency of established firms. As production increases, the average cost per unit decreases, providing a competitive advantage to larger companies. This discourages new firms from entering and competing with economies of scale.

Example: In the automobile manufacturing industry, large carmakers enjoy economies of scale due to their established production facilities, distribution networks, and purchasing power. New entrants face difficulty achieving similar cost efficiencies, making it a structural barrier to entry.

b. High Capital Requirements: Some markets require substantial upfront investments in machinery, technology, or infrastructure to compete effectively. High capital requirements act as a deterrent for new entrants, limiting their ability to enter the market.

Example: The airline industry demands significant capital investment to purchase aircraft and establish routes. This high capital requirement makes it difficult for new airlines to enter the market and compete with established carriers.

c. Access to Distribution Channels: In certain markets, established firms may control critical distribution channels, making it difficult for new entrants to reach customers effectively. Without access to established distribution networks, new firms may struggle to gain market share.

Example: In the retail industry, large supermarket chains control established distribution networks, making it challenging for new grocery stores to enter the market and compete for shelf space and customer visibility.

2. Behavioral Barriers to Entry:

a. Predatory Pricing: Dominant firms may engage in predatory pricing, intentionally setting prices below cost to drive out new entrants. Once competitors are forced out, the dominant firm can then raise prices and regain its market power.

Example: A large software company offering its products at unprofitably low prices to deter new software startups from entering the market is an example of predatory pricing.

b. Brand Loyalty: Established firms often build strong brand loyalty and customer trust over time. This creates a barrier for new entrants as customers may be hesitant to switch to an unknown brand.

Example: Tech-savvy consumers' strong brand loyalty to smartphones may deter new smartphone manufacturers from entering the market, even if they offer innovative features.

c. Exclusive Contracts: Existing firms may enter into exclusive contracts with suppliers or distributors, preventing new entrants from accessing essential resources or distribution channels.

Example: A dominant beverage company entering into exclusive contracts with popular restaurants and convenience stores may limit the ability of new beverage companies to access these sales channels.

In summary, barriers to entry can be both structural and behavioral. Structural barriers stem from inherent market characteristics, such as economies of scale and high capital requirements. Behavioral barriers, on the other hand, result from strategic actions taken by existing firms to discourage or limit new entrants, such as predatory pricing and brand loyalty. Understanding these distinctions helps identify the challenges new firms face in entering competitive markets.

---Regulators and Contestability

Regulators play a crucial role in influencing the degree of contestability in a market by implementing policies and regulations that either promote or hinder competition. Here are several ways regulators can affect contestability in a market, along with examples:

1. Barriers to Entry and Exit:

   • 
     
   • Regulators can influence the ease with which new firms can enter a market by setting entry requirements, licensing, or imposing restrictions on potential entrants.
   • 
     
   • They can also impact the ability of firms to exit the market by imposing exit fees, liquidation costs, or other legal barriers.
   • 
     

   Example: In the telecommunications industry, regulators can grant or deny licenses to new companies seeking to provide services. If regulators make it easy for new firms to obtain licenses and enter the market, it encourages greater contestability and competition among telecommunications providers.

2. 
   

3. Anti-Competitive Practices:

   • 
     
   • Regulators can enforce antitrust laws to prevent anti-competitive practices, such as price-fixing, collusion, or predatory pricing, which can restrict competition and limit contestability in a market.
   • 
     

   Example: In the airline industry, regulators can investigate and take action against airlines engaging in collusion to fix ticket prices. By curbing such anti-competitive practices, regulators ensure a more competitive market that benefits consumers with lower fares and increased choices.

4. 
   

5. Merger and Acquisition Approval:

   • 
     
   • Regulators can assess and approve or reject mergers and acquisitions based on their potential impact on competition and contestability in the market.
   • 
     
   • They may require divestitures or impose conditions to ensure that the merged entity does not gain undue market power that could harm competition.
   • 
     

   Example: When two pharmaceutical companies propose a merger, regulators may scrutinize the deal to assess its potential effects on competition in the pharmaceutical industry. If the merger is deemed to reduce competition and contestability, regulators may impose conditions or reject the merger to maintain a competitive market.

6. 
   

7. 
   

8. Price Regulation:

   • 
     
   • Regulators can set price caps or price floors to prevent firms from exploiting their market power and to promote a competitive environment.
   • 
     
   • Price regulation can prevent monopolistic practices and ensure that consumers have access to reasonably priced goods and services.

   Example: In the electricity market, regulators can impose price ceilings to limit the prices charged by power generation companies. This prevents firms from exploiting their dominant position and promotes contestability in the electricity market, allowing new entrants to compete.

9. 
   

10. Access to Essential Facilities:

    • 
      
    • Regulators can ensure that essential facilities or infrastructure, such as transportation networks or communication networks, are accessible to all firms on fair and non-discriminatory terms.
    • 
      
    • This prevents the dominant control of essential facilities by a single firm, allowing competitors to enter the market and increase contestability.
    • 
      

    Example: In the railroad industry, regulators can mandate that rail network operators provide access to their tracks for other freight companies at fair rates. This promotes competition in the freight transportation market and enhances contestability.

In summary, regulators can significantly influence the degree of contestability in a market through various policies, regulations, and enforcement actions. By promoting fair competition, preventing anti-competitive practices, and ensuring access to essential facilities, regulators contribute to creating more competitive and contestable markets that benefit consumers and promote innovation.

What Ray Dalio Misses in his Analysis of Empire

 

A Mistaken Critique of Marx

 

No grades, no timetable: Berlin school turns teaching upside down

Philip Olterman in The Guardian

Anton Oberländer is a persuasive speaker. Last year, when he and a group of friends were short of cash for a camping trip to Cornwall, he managed to talk Germany’s national rail operator into handing them some free tickets. So impressed was the management with his chutzpah that they invited him back to give a motivational speech to 200 of their employees.

Anton, it should be pointed out, is 14 years old.

The Berlin teenager’s self-confidence is largely the product of a unique educational institution that has turned the conventions of traditional teaching radically upside down. At Oberländer’s school, there are no grades until students turn 15, no timetables, no lecture-style instructions. The pupils themselves decide which subjects they want to study for each lesson and when they want to take an exam.

The school’s syllabus reads like any helicopter parents’ nightmare. Set subjects are limited to maths, German, English and social studies, supplemented by more abstract courses such as “responsibility” or “challenge”. For “challenge”, students aged 12 to 14 are each given €150 (£115) and sent on an adventure they have to plan entirely by themselves. Some go kayaking, others work on a farm. Anton went trekking along England’s south coast.

The philosophy behind these innovations is simple: as the requirements of the labour market are changing, and smartphones and the internet are transforming the ways in which young people process information, headteacher Margret Rasfeld argues, the most important skill a school can pass down to its students is the ability to motivate themselves.

“Look at three or four year olds – they are all full of self-confidence,” Rasfeld says. “Often children can’t wait to start school. But frustratingly, most schools then somehow manage to untrain that confidence.”

The Evangelical School Berlin Centre (ESBC) is trying to do nothing less than “reinvent what a school is”, she says. “The mission of a progressive school should be to prepare young people to cope with change, or better still, to make them look forward to change. In the 21st century schools should see it as their job to develop strong personalities.”

Making students listen to a teacher for 45 minutes and punish them for collaborating on an exercise, Rasfeld says, was not only out of sync with the requirements of the modern world of work but also counterproductive. “Nothing motivates students more than when they discover the meaning behind a subject of their own accord.”

Students at her school are encouraged to think up other ways to prove their acquired skills, such as coding a computer game instead of sitting a maths exam. Oberländer, who had never been away from home for three weeks until he embarked on his challenge in Cornwall, said he learned more English on his trip than he had in several years of learning the language at school.

Reinventing education: pupils at the ESBC, which is gaining a reputation as Germany’s most exciting school. Photograph: Handout

Germany’s federalised education structure, in which each of the 16 states plans its own education system, has traditionally allowed “free learning” models to flourish. Yet unlike Sudbury, Montessori or Steiner schools, Rasfeld’s institution tries to embed student self-determination within a relatively strict system of rules. Students who dawdle during lessons have to come into school on Saturday morning to catch up, a punishment known as “silentium”. “The more freedom you have, the more structure you need,” says Rasfeld.

The main reason why the ESBC is gaining a reputation as Germany’s most exciting school is that its experimental philosophy has also managed to deliver impressive results. Year after year Rasfeld’s institution ends up with the best grades among Berlin’s gesamtschulen, or comprehensive schools, which combine all three school forms of Germany’s tertiary system. Last year’s school leavers achieved an average grade of 2.0, the equivalent of a straight B – even though 40% of the year had been advised not to continue to Abitur, the German equivalent of A-levels, before they joined the school. Having opened in 2007 with just 16 students, the school now operates at full capacity, with 500 pupils and long waiting lists for new applicants.


Given its word-of-mouth success, it is little wonder there have been calls for Rasfeld’s approach to go nationwide. Yet some educational experts question whether the school’s methods can easily be exported: in Berlin, they say, the school can draw the most promising applicants from well-off and progressive families. Rasfeld rejects such criticisms, insisting the school aims for a heterogenous mix of students from different backgrounds. While a cross adorns the assembly hall and each school day starts with worship, only a third of current pupils are baptised. Thirty per cent of students have a migrant background, and 7% are from households where no German is spoken at all.

Even though the ESBC is one of Germany’s 5,000 private schools, fees are means tested and relatively low compared with those common in Britain, ranging between €720 and €6,636 a year. About 5% of students are exempt from fees.

Yet even Rasfeld admits that finding teachers able to adjust to the school’s learning methods can be harder than getting students to do the same.

Aged 65 and due to retire in July, Rasfeld still has ambitious plans. A four-person “education innovation lab” based at the school has been developing teaching materials for schools that want to follow the ESBC’s lead. About 40 schools inGermany are in the process of adopting some or all of Rasfeld’s methods. One in Berlin’s Weissensee district recently let a student trek across the Alps for a challenge project. “Things are only getting started,” says Rasfeld.

“In education, you can only create change from the bottom – if the orders come from the top, schools will resist. Ministries are like giant oil tankers: it takes a long time to turn them around. What we need is lots of little speedboats to show you can do things differently.”

Experts devise formula to crack Agatha Christie's murder mysteries

Victoria Ward in The Telegraph

Her whodunit murder mysteries have confounded millions of armchair detectives, leading them through a literary maze of twists and turns before a super sleuth finally unmasks the culprit.

But scientists who have studied some of Agatha Christie’s best-selling crime novels claim that that they can be solved with a simple formula, based on the language she uses, the murder weapon, the setting and even the type of vehicle being driven.

A panel of experts analysed 26 of the author’s most famous books, including Death on the Nile, Murder on the Orient Express and The Murder of Roger Ackroyd, concluding that certain plot structures could help the reader identify the killer some time before he or she is dramatically revealed.

The panel, led by Dr Dominique Jeannerod, senior research fellow at the Institute for Collaborative Research in the Humanities at Queens University, found that the culprit was always introduced within the first half of the book, and was likely to be emotionally involved with the victim, most being spouses or blood relatives.

• Agatha Christie's Devon

They said that if there were several land vehicles in the story, the killer was likely to be female. Similarly, a prevalence of nautical vehicles suggests they are more likely to be male.

If the victim is strangled, the perpetrator is more likely to be male and if the setting is a country house, there is a 75 per cent chance they will be female.

Christie’s language tends to be more negative when concerned with female killers, who are normally discovered due to a domestic item, they said.

By comparison, men are normally caught using information or logic.

The panel, which also included Dr James Bernthal from the University of Exeter and data analyst Brett Jacob, found that if Hercule Poirot, the eccentric Belgiun detective, took charge of the investigation, and the cause of death was stabbing, the killer will be mentioned more frequently at the beginning of the book.

If Miss Marple is the detective, and the motive for the murder is money or an affair, the killer will be mentioned more in the later stages of the novel than the beginning.

The experts also found that Christie's novels tended to include a “main clue” which is revealed approximately half way through the text and is usually “highlighted as it appears in the text”, so the reader is likely to remember it and will not feel cheated by its later revelation as a clue.

 They said a key feature of the author’s writing style was simplicity, using middle-range language and repetition.

The panel also found that the structure of a Christie novel could be reduced to a list of key events: the body will be found early on, a closed group of will be presented to the reader, the detective will then be introduced and a series of red herrings will follow and finally, after it is solved, the story will be wrapped up quickly and efficiently, leaving the reader satisfied.

The research was commissioned by UKTV channel Drama to mark the 125th anniversary of her birth.

Adrian Wills, general manager for Drama said "Agatha Christie is the best-selling novelist of all time, so the television adaptations of her books are hugely popular.

"Given her on-going popularity, we wanted to know her formula for success, especially since the whodunit is such a classic of the crime drama genre.

"We hope that her legions of dedicated fans will revisit their favourite whodunits with a better understanding of how to crack the ultimate code."