Effect of File Sharing on Record Sales

http://hbswk.hbs.edu/item/4206.html

Advancement in technology almost always affects the economy. In most cases, a new technology is introduced which causes production to be easier and supply to increase. In the case of the music industry, there is much debate whether or not new technology is the cause behind a decrease in record sales or if it is due to something else such as a change in consumer preferences or a decline in the overall economy of the U.S.

Many believe online file sharing is responsible for a recent decline in record sales because consumers no longer have to purchase music because they are able to download and share music online. A study conducted Harvard business professor, Felix Oberholzer-Gee, found that the opposite might actually be the case. He discovered that people don’t download full CDs, instead they download only the hit songs from an album. The radio industry is a compliment to the record industry. People hear hits on the radio and eventually buy the whole CD. He believes that same is true for online sharing. Online sharing is also much cheaper than the radio which creates a more competitive market because there is a greater competition among sharing services. This causes the cost of promotion for the industry to decrease.

On the other hand, unlike with CD sales, iTunes allows for individual song downloading. The economics of the music production are characterized by significant fixed costs and because the albums are now broken apart, the revenue earned from a new album is much lower. This is why many believe that file sharing has hurt the music industry.

The music industry needs to find the most efficient type of bundling of song sales. For example if consumers buy most hit songs on a CD they could get the rest at a discount whether online or in store. A proposed resolution for the decline in record sales is a strategy of selling compliment to record sales. An example of this strategy is when artist give away new releases to promote concerts. Economists need to find a way to use online music sharing to maximize profits and not affect externalities such as the stores that sell the records. If the music industry can find a way for recent advancements in technology to compliment record sales instead of substitute for them, they may be able to regain some of the recent loses in record sales.

The Floor is the Limit

On December 1, 2008 the National Bureau of Economic Research made an announcement that the United States had entered into a recession on December 1st of the previous year and declared by June 2009 the recession had ended. Effective July 29 succeeding this recession was the federal minimum wage increase from $5.15 to $7.25 an hour. The decision of the increase is based off the standard cost of living, which positions inflation as a determinant of this price. Although this price was determined in a better labor market, it is a generally understood concept that when wage increases the number of workers decreases.
In a labor market two major factors are supply, or the households, and demand, which are the businesses. In a natural environment the Law of Demand and the Law of Supply are at work. The businesses pay a rate the workers are willing to work for. The Fair Labor Standards Act enforced by the U.S. Department of Labor creates a price floor, allowing no wage to be less than floor rate. Because of the federal minimum wage rate, disequilibrium is created among the market. Most people are willing to work but the increase causes a decrease in the businesses willingness to provide jobs thus a surplus is created. In November 2007 the unemployment rate was 4.7 percent as recorded by the Bureau of Labor Statistics, as a result of this surplus of workers the unemployment rate grew 5.2 percent.
The alteration in the market forms two categories of people, the currently employed are the “winners” in the scenario and the currently unemployed are the “losers.” The “losers” can be further broken down; losers of equilibrium are the people who had jobs but got laid off due to the increase in price of labor and losers of supply are those now willing to work because of the increase in pay but can no longer find a job. As the article states teens between the ages of 16 through 19 tend to be the underdogs. Teen employment has fallen approximately 17 percent since the 1990s and is still declining. Many other factors contribute to a low teenage employment rate; such as an increase in school enrollment, but in the end it all boils down to how much profit can the company make? Willingness to pay is a major concept brought up in this article, and it states “…a typical teenager may not be worth more than $4 or $5 an hour to an employer.” So why would any employer want to pay a higher wage for an unskilled worker with no experience more prone to make mistakes, then an experienced less prone worker with the ability to get more done? This is the dilemma employers’ face as a result of the price floor and the teens are left with the results of being jobless.

http://money.usnews.com/money/careers/articles/2010/05/26/why-jobless-teens-may-have-more-to-blame-than-the-recession?PageNr=1

“They’re Bust. Admit It.”

The fiscal state of things in Europe is far from stable. With the recent resignation of Portugal’s Prime Minister, Jose Socrates, the Portuguese economy is on a fast downward spiral. Greece and Ireland are not in any better conditions economically themselves. These nations are considered in the worst economic state in Europe. European officials from various nations met on March 24^th-25^th. They set many goals to “rescue” any and all nations from their economic plight by the year 2013. However, the delay in their plan is said to come from many of the nation’s own leaders. For example, Angela Merkel (German Chancellor) refused to give the money to the “rescue plan” that her finance minister had pledged to the 2013 plan. Due to these nations failing economies, investors refuse to pour their money into Greek, Irish, and Portuguese economies that seem to be failing faster and faster each day.

I chose this article because I think it is a good example of how command economies in Europe are very difficult to keep successful and effective. Both Greece’s and Ireland’s governments have stepped in and tried to make drastic reforms to their failing economies. Both nations’ governments have tried to implement budget cuts. Portugal has tried to tighten their fiscal policies, hoping to bridge the gap that their debt has seemed to stem from. Our textbook defines a command economy as economies in which the government makes all important decisions about production and distribution. In Europe, a command economy is difficult to uphold because of most of the European nations being on the Euro, unifing their currency, and in turn causing many different hands to take control in each nation’s economic policies.

In the case of Greece, Ireland, and Portugal, the European Union cannot have their (Greece, Ireland, and Portugal) massive debt be present the overall European economy. Because of this stance by the European Union, they want to give these failing economies a quick fix, despite the crippling effects these fixes will have on any future potential growth of these three economies. Most economists have attributed the economic difficulties found in these nations to mistakes that occurred in Brussels (which is understandable considering Belgium has not had a standing government for over 290 days), Frankfurt and Berlin.

Europe has set up a bizarre command economy within their Union. The European Union in a way acts as the “government” that is supposed to be regulating. This causes problems when individual nations’ economies fail, as opposed to just a single market failing (the latter would be the situation in a true command economy). I think that the European Union should seriously consider re-organizing. Clearly this method of a skewed command economy is not working out. Most economies today are mixed, in fact, most economies within individual European nations are probably mixed, so to have them all answer to the European Union does not make much sense. The line between micro and macro economics has been seriously blurred, combining expectations of the nation with those of the European Union. If the European community would focus more on the growth of their markets as opposed to the wealth (or lack there of) of each individual nation, then they might be in a much happier financial place.

http://www.economist.com/node/18485985

“Wells Loses Mortgage Discrimination Case”

I chose a recent article by Courtroom View Network, because I felt that its topic might be of particular interest to those of us in the ECON 121 class. "Of what interest is a discrimination article to me as an economist" you might ask yourself? To those persons lacking a firm knowledge of economic principles and terminology it would probably appear to be just another article about race discrimination, because it does, after all, mention that Wells Fargo was found guilty of discriminating against minorities. So how does race discrimination have anything to do with the world of economics? The answer is that race discrimination alone has nothing to do with economics, but that’s not the only type of discrimination involved here, there is another type, and it has everything to do with the world of economics—price discrimination.

But before we can gain a better understanding of how it was that Wells Fargo was found guilty of price discrimination, we must first develop a clear understanding of what constitutes price discrimination. Our ECON 121 textbook (Economics 19e, by Samuelson and Nordhaus) defines price discrimination as: “a situation where the same product is sold to different consumers for different prices” (glossary). It further tells us that price discrimination “is widely used today, particularly with goods that are not easily transferred from the low-priced market to the high-priced market” (194). This type of discrimination is most often carried out by large firms having market power; they are hoping to maximize profits through discriminatory pricing. While the airline industry is perhaps the most frequent offender of price discrimination, they are by no means alone, as utility companies and banks also make the evening news headlines.

Armed with a better understanding of what price discrimination is, we can now delve more deeply into the Wells Fargo case. It starts with their usage of a software tool called “Loan Economics,” which it claims was intended “to increase loan volume and profitability, not to offer the lowest price on every loan.” It’s not the tool, but rather the manner in which Wells Fargo utilizes it that raises allegations of discriminatory pricing in the issuance of 7,348 mortgage loans. What’s wrong with utilizing a software program that helps maximize profits? Nothing, except in this case they used it to offer lower mortgage rates to borrowers in non-minority neighborhoods, while at the same time offering borrowers in minority neighborhoods much higher mortgage rates—they sold the same product to different consumers for different prices. In response to these allegations, Wells Fargo tried implying that its minority buyers willingly agreed to pay these higher mortgage rates, but testimony would reveal that they accepted these higher rates only because they were never informed of the lower rates offered to non-minority borrowers.

It should be noted that a jury, after lengthy deliberations, did find that Wells Fargo discriminated based on race—which it was—but only on 880 of the loans in question. If this case had been heard by a jury panel consisting of economists, Wells Fargo would have been found guilty of price discrimination as well.

TheStreet.com, Inc.

By Courtroom View Network

http://www.thestreet.com/story/11058133/1/wells-fargo-loses-mortgage-discrimination-case.html

Starbursting: Breaking up companies is back in fashion

Have you ever heard of the economic term"Starbursting? It is likely you have not. Before you flip to the glossary of your textbook, I must assure you its definition is not listed. In fact, starbursting is an anomaly our textbook fails to mention. Furthermore, recent firm behavior suggests starbursting is back in fashion. Starbursting is a restructuring tactic firms use to break themselves up into smaller pieces. This seems counterintuitive to what we have been learning about in class. We suspect most firms strive to become a natural monopoly or at least a member of an oligopoly. So why would a firm choose to divide itself into pieces? The answer is simple. Firms are becoming so large and difficult to manage that they feel a need to reduce themselves to their “innovative cores.” This has caused some firms to have numerous spin offs. Our textbook mentions how firms produce a range of different products to limit the competition. Starbursting is an entirely different concept. For example, a spin off from one firm will operate independently and be valued as such. This year, Motorola separated from its headset making business, which was valued at 10 billion. In addition, Fiat axed off its lorries and tractors business that had a calculated value of 18 billion. Some firms separate with the hope someone else will buy the spin off. However, the global economy is so dismal that few have attempted to do so.Another factor that influences firms to separate is the conglomerate discount. The conglomerate discount occurs when the stock market values a firm to be worth less than the sum of its parts. According to Carsten Stendevad of Citigroup, starbursting is actually good for the market. In most cases, both spin offs and parent firms will trade better after separation. Due to the recession, it is likely more firms will engage in this practice.The starbursting trend is certainly on the rise in North America and in Western Europe, but is not as prevalent in other countries. One reason for this occurrence could be political connections and market expertise transcend across industries in both North America and Western Europe. Possession of both of these qualities gives spin off firms a stable footing in the marketplace. It is also the reason why firms are becoming more diversified. For instance, Hewlett-Packard has made inroads into the software and energy market. Ultimately, starbursting is the next stage of firm evolution. www.economist.com/node/18440915

NFL Labor Dispute

The 2011 NFL season is possibly going to be canceled due to an ongoing disagreement between the players and owners. There are several main issues at hand, but, possibly the largest is some $4 billion in TV revenue that the owners have refused to give to the players. The players feel that this has been earned by them and their success on the field, thus they should be given a portion of it. George Atallah, the deputy director of the NFL Players Association, stated that, "There was a clear and premeditated plan to lock out the players." Which undoubtedly is true because some anonymous NFL officials told reporters that the $4 billion was kept as "insurance money" if the lockout was to extend into the 2012 season. This ponders the question, why would the owners want to lock the players out? Simple, there would be no player salaries to pay for an entire year or any benefits that go along with that (heal insurance, bonuses, etc). The owners would still make money due to the sale of merchandise and in some instances the various uses of its respective stadiums for events. If a lock out were to occur, the players would almost have to find another job for that whole year unless they had massive amounts of money saved up. In essence, the owners are just keeping their costs down, however at the expense of all their employees. http://sports.espn.go.com/nfl/news/story?id=6215282

The "Best Buy" is somewhere else

Have you ever bought an iPod? How about a GPS for your car? Maybe you want a new digital camera, or a better lap top for school? If you have ever purchased one of these high priced items, and done your homework before hand, you’ve probably found that the cheapest way to go about getting what you want is by ordering online. This, along with a few other reasons, is why the electronic retail giant Best Buy may be loosing its hold on the American gadget market. The demand for the products that Best Buy carries is always high. Americans seem to have an unyielding thirst for the new, the up-to-date, and the super advanced. Best Buy has always been there as store that offers us a chance to test and play with whatever new electronic device we are interested in. But some experts say that’s all the store has become. It is much cheaper for the consumer to go to Bust Buy where all the products are on display, test the good they wish to purchase, and then return home where they can order it for half the price Best Buy was selling it for. If we were to look at this on a simple supply and demand graph, we could see that the equilibrium price for these high end electronics has been found, but the price that Best Buy is selling them for is much higher than equilibrium. These kinds of goods are extremely price elastic. If Best Buy decides to charge just a small amount more for a lap top than a discount website distributor, then almost all consumers will order the computer online to save a lot of money. Not only are there countless websites which offer these high end electronics at extremely low prices, but there are also mass merchandise retailers who can offer these products at even more competitive prices than Best Buy. Best Buy has not yet reached the point of no return. Their stocks may be down, and it may look even worse down the road, but they are still turning a profit. Their firm may be on a downward slope but there is no reason for them to exit the market. There may be a time in the near future when Best Buy will go private and sell all their stock, but for now their average costs are still below their prices set.

http://money.cnn.com/2011/03/28/technology/thebuzz/index.htm

Telecommunications moves closer to Duopoly

Bad news might be on the horizon for wireless phone customers. In a bold move, major wireless carrier AT&T has made a proposal to acquire T-Mobile. Both companies are major players in the telecommunications market and a proposed merger will create major implications for the market and customers alike. Along with Verizon, AT&T is one of the two largest telecommunications companies on the market right now, and the acquisition of T-Mobile will only increase it's already considerable influence over the market. When the Bell company, the last company to hold a monopoly on the telecommunications market fell apart, the industry turned into in a state of near perfect competition, allowing for better prices for costumers as the many telecommunications firms fought for more influence. Since then, mergers and acquisitions have led to many companies being absorbed into one another, most notably in the past few years the merger of AT&T and Cingular. The current market is in a state of Oligopoly, with the major providers of wireless telephone service in the United States being Verizon, AT&T, T-Mobile and Sprint. The decrease in competition in the telecommunications industry has led to increases in prices over the years with only marginal increases in quality. Phones today require expensive data plans and have many underlying charges while the quality of the product depends mostly on personal preference and the region you live in. The proposed $39 Billion dollar acquisition of T-Mobile goes through, the wireless industry will likely turn into a 2 horse race between AT&T and Verizon. There are likely to be few challengers capable of keeping up with the two new powerhouses of the industry, as both Verizon and AT&T have very sought after phones on their rosters. Both carry the ever popular iPhone and an array of smart phones that continue to gain in popularity as new technology becomes available. The merger also puts pressure on Verizon and slightly less powerful Sprint to snap up smaller companies as a bid to keep up with AT&T. The lack of quality in other carriers such as Boost Mobile or Cricket wireless, who typically provide pay-as-you-go plans, are unlikely to attract customers away from the major companies regardless of price increases. A new wireless market composed of two giants is likely to lead to more headaches for wireless costumers as less competition and limited regulation in the industry will likely lead to even higher prices for what many now consider to be an essential technology in their life.

http://www.fool.com/investing/fiercemarkets/2011/03/23/atts-proposed-t-mobile-acquisition-going-from-mono.aspx
http://blogs.seattleweekly.com/dailyweekly/2011/03/att_to_eat_t-mobile_in_39b_mon.php
http://articles.latimes.com/2011/mar/21/business/la-fi-att-tmobile-20110321

With Oil Prices Increasing, is it Time to Switch to Natual Gas?

With oil prices increasing at an exponential due to increasing, there is a decreasing oil supply and reserve leading to increased prices. With the region in affect, New England, there has been a close to equal price between both products. Since the late half of the decade, there has been a decrease in households that heat with oil to a change to houses now being heated with natural gas. The difficulty in this is the cost that it takes to convert from an oil heating system to a natural gas system, a cost between $4,000 and $6,000 dollars (Freeman). Oil prices have risen from $62 dollars a barrel to $103 dollars a barrel in he pasty year. This increase has the affect of saving more than $1500 dollars in the winter months, if using natural gas. The oil supply is increasing prices rapidly becasue of the decreased supply and increased demand. The law of supply and demand states that prices go down then quantity consumed increases, but this is not the case. Prices are increasing but the quantity consumed is continuing to increase because of relied need for oil. With natural gas, the increasing price of oil is showing a market shift to natural gas. The price of natural gas is decreasing because of a newly found supply of natural gas. The United states consumes around 20 trillion cubic feet a year, but the new supply found is over 500 trillion cubic feet, a surplus of natural gas available for consumption. This increase in supply is showing a direct effect with the need for natural gas in the heating industry, more people are switching from oil to natural gas becasue of the decrease in prices of heating. With the saving switched from oil to natural gas, switching a heating system would be possible with the money saved from not using oil. With domestic oil monopolies of the past being dissovled so that there is the potential for competition with prices, the prouction cost for producing oil has increased because of the demand. This demand increase has regionally standardized prices for demand but not between the middle eastern oil barons. The monopolies in the oil producing countries has resulted in a constant imported oil price at $103 per barrel, but because demand is on a regional basis, the price may vary state to state. The strength of the middle eastern oil barons, individuals who have greater power in an are, and their influence on price flux makes oil prices sucesstible for drastic change and increase. A domestice reserve of natural gas allows for individual price variation beacuse of the absence of monopolies, individuals that determines who is allowed to access that good. This absence of monopolies will allow for lower prices in the natural gas market and a lower total cost for heating of homes. This allows for more perfect competition, a result in having smaller firms, allowing for more consumer choice between homes, rather than relying on the oil barons to determine production cost for oil companies. http://www.masslive.com/news/index.ssf/2011/03/with_oil_prices_spiking_is_is.html

Rising Beer Prices Hint at Oligopoly

In this New York Times article the beer companies Anheuser-Busch InBev NV, SAB Miller, and Molson Coors are accused of rising prices for competition purposes and are being labeled oligopolies. The definition of an oligopoly is a situation of imperfect competition is which an industry is dominated by a small number of suppliers. These suppliers are all raising their beer prices together at the same time and control about eighty percent of the beer market. This has occurred before, but since the United States is in recession, there are problems that are starting to arise. The simple up rise of price on a six-pack of beer is stirring up issues within the beer markets. Throughout the years the number of beer suppliers have decreased due to the rivalry between these three brands.

Since President Barrack Obama has been appointed, his administration has been out to break up these beer monopolies along with other monopolies, such as those with food, gas and electronics. In the past there has been cases brought to the Supreme Court that deal with such antitrust issues. The Sherman Antitrust Act was passed in 1980 in order to regulate fair competition between markets. It eliminates the possibility of monopolies taking over. These three beer companies are so big, and just keep on growing which makes it almost impossible to stop or control. To them, some fines are just little bumps in the road and do not really make that big of a difference to their company. In the past companies such as Pabst has been ruled as anticompetitive and having to change different strategies and other brewers, such as Blatz, that they had acquired.

These three beer companies are so strong and have so many well-known names with in them. It would seem almost impossible for any other companies to come anywhere in reach. They are an imperfect competition and have had great success with their advertising and competitive pricing, these companies are going nowhere fast.

http://www.nytimes.com/2009/08/27/business/27views.html?_r=1&ref=anheuserbuschinbevnv

Has Apple Finally Become a Monopoly Like Microsoft?

In this article written by James R. Stoup, he addresses the question if the company Apple has finally become a monopoly just like the company Microsoft. Microsoft has been known as being a monopoly for completely taking over their market for their product. Microsoft broke the law by using their monopoly “to ensure their position in the market, force smaller companies out of business or otherwise stifle competition” (Stoup). So is Apple a monopoly with their products like iPods, iPads, Mac laptops, iPhones, and the digital music world of itunes?

A monopoly is defined as a single seller with complete control over an industry. Stoup decided in his article that Microsoft was a monopoly for their complete control and running their competition to the ground. The question is if Apple is doing the same thing. Apple is a company that focuses on digital music. Apple uses iTunes to make much of their profits. The company gets 30 plus percent of every transaction on iTunes. With that, the selling of iPods helps Apple become a monopoly.

Apple not only is controlling the digital music industry with almost no competition but they are also into the computer and laptop business with the “Macs.” Macs are laptops and computers that are competing with companies like Dell and HP are doing very well. Apple does not completely control the industry of computers though. Unlike the digital music with very few competitors, which would be considered an “oligopoly” the Macs have quite the competition.

Unlike Microsoft’s monopoly, Apple is not doing anything illegal. They are not going out of their way to put other companies down. There are no competitors in the digital music industry that can keep up with Apple. Why is Apple so good? They are constantly improving their products and maintaining low prices. So is Apple becoming an actual monopoly? According to Stoup, yes the company is starting to take control of their market. There is no one that can even come close to competing with Apple with their digital technology. Apple will not last in the long run without any competitors. Competition is always needed to constantly be improving. In their case, they will need competition to keep improving their products or they will get lazy in the long run. Just like Microsoft, Apple is becoming one of the big bad monopolies for their business practices and the quality of their product except Apple is not engaging in unlawful tactics.

http://www.applematters.com/article/has_apple_finally_become_a_monopoly_like_microsoft/

Economics Cartoon

Beyond the jokes about the down economy and an irritated country, this cartoon helps show the laws of supply and demand and smart investing. As the demand for for pitchforks goes up, the supply will drop and the price will rise. As pitchforks make more money, smart investors will try to stay ahead of the curve but investing in pitchfork companies before they make larger profits, therefore making more money themselves.

The Economy Effecting Education

President Obama claimed that “if we want more good news on the jobs front then we’ve got to make more investments in education.” While this is a previously known fact of life, a day later The New York Times released an article in which it was declared that software has become the predominate tool in legal research where as it had previously been done by collections of skilled wokers. Using such software provides a cheaper and more effective method of legal research. Due to this, the demand for technology over highly educated and skilled workers has increased. It is not only replacing more humble jobs but due to this it has created a greater demand for skill. This has led to the conclusion that only high-wage and low-wage positions have increased but those in the middle, the ones which support a middle class, have lagged. This has caused a call to fix the American education system and the inequalities that are faced within that. It was previously thought that with a good college degree, you would be successful in finding a good job. This no longer holds true and only continues to become a more invalid statement throughout the passing decades. But as this process occurs, one must wonder how this and the economic divides have effected the college process for students.  

After a survey was administered in which 21,000 high school students participated, it was shown that the economy and the current recession has been effecting students college decisions more so than it had in the past. It was released that sixty-eight percent of the applicants claimed that the economy has proved to be a crucial factor in their college decisions. This percentage has increased by four percent each year since 2009, which was described as the height of the economic recession. Through this, it was deducted that total cost of a specific college or university effected the students decision to apply or enroll by a staggering eighty-seven percent. 

            Through this, it can be determined that the demand for highly skilled workers is beginning to decline but yet there is a constant supply of educated graduates coming out of college to fulfill a decreasing number, or quantity, of jobs within the market. Due to the increase in the both the supply and demand of technology, there has been a furthering in the gap between the rich and the poor. There has been a sharp decline in the presence of the middle class and the number of jobs to support such a class. According to such articles, there needs to be a transformation within the American education system but I believe that this is an outdated theory.  If so, it can be interpreted that the undergraduate and graduate educations will only become more expensive and thus more families will suffer from this and will only further the divide which has become the original problem. I instead believe that there has to be an increase in the number of employment opportunities instead considering that there will always be a constant supply of people who are in need of jobs and without that and their entrance into the workforce, the overall economy will eventually suffer as well. I believe that there has to be an increase in the demand to meet the constant supply to at least aid the problem of the class and economic divide within society. 

http://www.nytimes.com/2011/03/07/opinion/07krugman.html?ref=unitedstateseconomy

http://thechoice.blogs.nytimes.com/2011/03/23/economy-2/?scp=2&sq=economy&st=cse

Roanoke College Economics: Roanoke College Economics Professor Wins the 2011 ...

Roanoke College Economics: Roanoke College Economics Professor Wins the 2011 ...: "Alice Louise Kassens (Associate Professor of Economics, Roanoke College) was the top female finisher in the 2011 Quintiles Marathon at Wrigh..."

Japan's Natural Disaster Hurts Economy

On March 11, 2011, Japan was devastated by a natural disaster that struck the Japanese economy. The 9.0 magnitude earthquake and tsunami devastated the northeastern coast and triggered a crisis at a nuclear power point. The Bank of Japan is conducting operations that are helping the rise in demand for post-disaster funds. Japan’s bank is taking cash from money markets and bringing its emergency funding to nearly seven hundred billion dollars.

The government had ordered workers at the nuclear plant to withdraw from a stricken nuclear plant in Japan due to a surge in radiation. The government ordered the temporary efforts to cool the overheating reactors for safety reasons. There will be a decrease in work and income for workers at the plant causing a decrease in income and future purchases for local business's. The nuclear crisis has triggered international alarm, its emergency at the nuclear plant is partially overshadowing the earthquake at this time, but both emergencies are affecting the economy in a negative manner.

The devastation has increased demand for fuel and food. Local supermarkets were cleared out after the disaster and Japanese civilians are not compliant having lost loved ones and not having food for the family that has survived. With a decrease in quantity, prices will rise in Japan until the economy can get back on track. In the automobile industry there is a power supply shortage that will slow down production. With a decrease in demand for automobiles due to higher prices of fuel, Japan is displaying an inward shift. Inward shifts in demand are usually due to famine or in this case natural disasters

The Japanese government is stepping in during a crucial time to take part during the market failure. I have not doubt that in time the Japanese government and Bank of Japan will build back up the country to what it originally has been. The billions of dollars going in to Japan will only benefit the country. With outside help from surrounding countries, states like Iwate, Miyagi, Fukushima and Ibaraki, which have been hit the hardest will see a brighter future. I think it will be impressive to see the progress Japan will make after a year compared to when Hurricane Katrina hit the United States of America in 2005. The reconstruction of New Orleans was a slow progress in the United States and I believe Japan will be determined to build up the economy much faster.

http://news.yahoo.com/s/ap/20110316/ap_on_bi_ge/as_japan_earthquake_economy;_ylt=Apm1PqdCEaLivvCBxynJcWTv5rEF;_ylu=X3oDMTMxZmpvazFjBGFzc2V0A2FwLzIwMTEwMzE2L2FzX2phcGFuX2VhcnRocXVha2VfZWNvbm9teQRwb3MDMQRzZWMDeW5fcGFnaW5hdGVfc3VtbWFyeV9saXN0BHNsawNqYXBhbnNjZW50cmE-

Google is a dangerous monopoly -- more than Microsoft ever was

Steven Christopher
Economics Article 3/22/11

Joe Wilcox starts in the article talking about Google’s search and advertising dominance and perceptions about the company’s growth. He explains that the sudden realization of Google’s monopoly started two years ago, starting with invention of the Google DoubleClick. Apparently, with the introduction of this new product came the significant boost that Google needed to start abusing power. Google controls the large majority of products in many areas, such as browsers, mobile operating systems, and advertisement. Through different developments, Google has made a monopoly, created an oligopoly, and a monopolistic competition.
This article proclaims that Google is the world’s largest monopoly. A monopoly is defined as a single seller with complete control over an industry. “The US Justice Department went after Microsoft in May 1998 out of fear the company would become the Internet’s gatekeeper. That never happened with Microsoft, but it most certainly is occurring with Google. Its business is all about profiting from information.” (Wilcox) Here, Wilcox clearly explains that Google controls the information online, and they are profiting off of it so well, they are able to keep all competition away. Google will always control the vast majority of information because of its browsers, such as the Chrome browser and mobile browsers.
Google reaches the level of monopolistic competition with its retail trade in operating systems for personal devices. A Monopolistic competition is defined as a market structure in which there are many sellers supplying good that are close, but not perfect, substitutes. In such a market, each firm can exercise some effect on its product’s price. “The Android mobile operating system was released in 2009, which sales rose 961 percent year over year in 2009.” (Wilcox) The Android mobile operating system showed that although there were other products on the market, the Android phones were the best substitutes to other phones. Google recently released a new operating system for mobile phones and net books called Chrome OS. With this introduction, Google swiftly became the leading supplier. Google clearly has the vast control over the market. “Google has erected a mobile applications stack, by leveraging together Android, Chrome, disparate Google Web applications and search services.” (Wilcox). Google is a market structure they supplies good, that are not perfect, but substitutes to other operating systems, and web browsers.
Oligopoly is defined as a situation of imperfect competition in which an industry is dominated by a small number of suppliers. In this article Wilcox proves that Google is a dominating industry. Google is one of few industries that control the ability to produce an operating system and browser. Google is also one of the few industries that control a large majority of E-books. “Google negotiated making millions of books freely available online via Google search.” (Wilcox). This is a demonstration of power that clearly indicates that Google is one of the few companies that controls this industry. Google has the resources, influence, and power to make these developments possible and impossible for other companies.
The Google corporation controls and influences information, operating systems, browsers, and new age technology. In recent years it is clear that Google has become a great monopoly, caused an oligopoly, and created a Monopolistic competition. Although the cooperation is liked and respected by most people, it is starting to hurt other businesses and corporations in specific areas because they cannot compete with Google. “Google is a dangerous monopoly. Being a monopoly isn't illegal in the United States, although in Europe it seemingly is so.” (Wilcox) Monopolies like Google need to have a boundary which does not allow them to take control, and push companies out of competition.

http://www.betanews.com/joewilcox/article/Google-is-a-dangerous-monopoly-more-than
Wilcox, Joe. "Google Is a Dangerous Monopoly -- More than Microsoft Ever Was Betanews." Betanews Technology News and IT Business Intelligence. Web. 22 Mar. 2011. .

"As Health Costs Soar, G.O.P and Insurers Differ on Cause"

The article I chose is from The New York Times and it is called “As Health Costs Soar, G.O.P. and Insurers Differ on Cause.” This article is about how companies and small businesses are being affected by rising premiums for health insurance. Economists are saying that health insurance is expensive simply because health care is expensive; premiums are rising because of the underlying cost of care and the growing demand for it. The cost of living in the country is barely rising 1-2% while increases in health insurance costs are rising as much as 20-45%. The problem is not just the increasing costs but the fact that the given coverage on insurance plans are also shrinking. Robert I. Woodland, the president of the Woodland Design Group in Manchester New Hampshire, stated: “Essentially, we have been paying a lot more for a lot less” (Pear, 1).

The author of the article states that the new federal health care law may eventually “bend the cost curve” downward. But as is appears now, the rising cost of health care is causing insurance premiums to rapidly increase while coverage given is shrinking. If we were to graph a general demand curve for health care, there would be movement up along the demand curve to show an increase in price. The law of demand states that there is a negative relationship between price and quantity; in other words, when the price of a good rises, with all other things constant, buyers tend to buy less of the product. When it comes to an essential good, such as health care, prices do not have as much of an effect on whether consumers will purchase this item. When a good is a necessity, or an inelastic good like health care, an increase in price will alter consumption of that good but not by much. The opposite of inelastic goods are called elastic goods. Elastic goods are considered to have lots of substitutes, causing consumers to be more sensitive to prices changes.

Looking to the future, President Obama’s administration and officials hope that starting in 2014, “each state will have a central market where consumers and small businesses can pool their purchasing power and buy insurance. In theory, the exchange could bring more insurers into the market, increase competition and drive down prices” (Pear, 2). Bringing more insurers into the market will cause an increase in suppliers. If we were to graph a supply curve for this to show an increase in supply, there would be an outward shift to the right of the supply curve. And if we were to graph a demand curve for this scenario, there would be a downward movement along the demand curve to show a decrease in prices.

Source:

Pear, Robert. “As Health Costs Soar, G.O.P. and Insurers Differ on Cause.” The New York Times. The New York Times, 4 March 2011.Web. 20 March 2011. http://www.nytimes.com/2011/03/05/health/policy/05cost.html?ref=healthcare

"Region's Clothing Stores Bump up Costs as Cotton Gets More Expensive"

This article from the Roanoke Times is a perfect example of the effects of supply and demand on the price that consumers must pay for a good. In the case discussed in the article, the supply of cotton on the world market has been drastically reduced because of damage to the cotton crop in China the world's largest cotton-growing country, loss of land to grow cotton in the United States as more land is being used for other purposes, and finally the increased demand for cotton clothing in many countries around the world. All of these factors have led to a restricted supply of cotton for clothing manufacturers.

As the worldwide supply has dwindled, prices for raw cotton have reached record levels. This rise in the price of the natural resource has most likely led to an increase in the variable costs manufacturers have had to pay in order to produce cotton garments. Some manufacturers are looking for ways to use less cotton in their products to help reduce these variable costs. As the cost of producing these items has increased, the clothing manufacturers have been forced to pass their expenses on to the stores that purchase their products for sell. Consequently, as the retail stores' expenses have risen, they have been forced to raise the price of the cotton clothing they sell, meaning that their customers have ended up paying more for the items they purchase.

The rise in the price of cotton would be shown as a shift to the left on a supply curve. Since demand has also increased, there would also be a shift to the right on the demand curve. If this trend continues, consumers will eventually be unwilling to pay the higher prices for cotton clothing. They will instead search for a substitute for the cotton clothing that they would normally buy. They will look for a cheaper alternative when deciding what kind of clothing to purchase for themselves and their families. The rising prices and the substitution effect will cause the demand for cotton to eventually decrease. As this happens, gradually the amount demanded and the amount supplied will once again become equalized meaning that a new equilibrium price will have been reached. When this occurs the cotton market will have stabilized and the prices for cotton clothing will probably decrease. Unfortunately there is no set timetable for when this stabilization will occur. Until then, we will all be paying more for the cotton products we purchase.


www.roanoke.com/business/wb/280462

Is the world in for another oil shock?

The Middle East and Africa produce over one third of the world’s oil. The Economists explains how there were three devastating oil crisis’ that caused a lot of unrest throughout the world, the Arab Oil embargo in 1973, Iranian Revolution in 1978-79, and Saddam’s invasion of Kuwait in 1990. Unfortunately, according to the article consumers have good reason to be concerned for another oil shock. In the article, the author explains how Libya’s turmoil could interfere with oil supply. The output of Libya’s oil supply has decreased by half. The Libya oil crisis could potentially cause this unrest to spread across the region and cause there to be an oil deficiency through out the Middle East. Luckily, the reaction on the market has not been that destructive. As the violence in Libya increased the price of Brent crude by 15% and, on February 24^th the price of barrel was up to $120 dollars. But since, Saudi Arabia said they would produce more oil it forced the prices to drop to $116 due to the law of demand. Due to the fact, gasoline is an inelastic good consumers are not very sensitive to the changes in price, which means that gasoline is essential to consumers. Although, gasoline is an inelastic good, economists are still concerned that the decreased supply in oil will cause the prices to escalate to an all time high and that the reduced supply could boost inflation. Fortunately, the Libya oil crisis has only decreased the world’s oil supply by 1%. Comparing to the crisis in 1973 where oil production decreased by 7.5% the 1% decrease does not seem that severe. Although, the prices are of oil are rising due to the oil crisis there is another reason that prices are raising as well. Prices of oil are increasing to the lack of supply of oil. Firms are raising prices in order to hopefully decrease the demand of oil because due to the law of supply when there is a shortage there is an upward pressure on prices. There are additional concerns about the affects of oil prices on inflation. Economists are concerned that if the prices of oil keep raising the increase in prices will fuel inflation. Inflation causes consumers to be less sensitive to price changes as well. Hopefully the problem will eventually work itself out and the unrest in Libya will cease so, there will be less concern about the production of oil. Until then there is some serious apprehension about the world’s production of oil.

http://www.economist.com/node/18281774

The rise of Netflix, the Demise of Blockbuster

As technology advances around the world, consumer’s expectations grow about the products they are buying. Consumers are also expecting to be able to get what they want more conveniently. Shopping through the Internet has become the new trend. Why drive all the way to the store to buy something when you can stay in the comfort of your home and purchase something through the computer? When two companies are producing virtually the same service, the consumer will almost always choose the more convenient of the two. This works towards the favor of companies such as Netflix, Hulu, and RedBox. The new technology and convenience of Netflix has made them the powerhouse in the category of movie rentals. This in turn has put Blockbuster on the brink of bankruptcy.

While Blockbuster stuck to an outdated business model, Netflix took advantage of the rent-by-mail and streaming video service. Blockbusters decline in numbers show us very clearly why they are on the decline. By the fourth quarter of the year 2009, Blockbuster’s total sales were down 16%. Their revenues were down 18%. This equated to a $425 million loss. By the end of 2009, Blockbuster had totaled $964 million in total losses. Hidden in those numbers are debts that Blockbuster owed to multiple large corporations such as $21.6 million to FOX, and $20 million to Warner Brothers.

Economist Ludwig Von Mises once said that if a business is unsuccessful, it is often because they have failed the consumer. Many customers feel as though they have been treated unfairly by Blockbuster, mainly pertaining to lack of customer service and late fees. Late fees themselves were what actually caused the creation of Netflix, resulting in the demise of Blockbuster. Reede Hastings, the CEO of Netflix, created Netflix after returning a movie he rented from Blockbuster late and receiving a $40 late fee. Hastings founded Netflix, which boasted no late fees. Customers could return movies whenever they pleased.

Blockbuster’s share price reached an all time high of $19 a share in 1999. By 2010, each share was worth a mere $0.30. In 2003, Blockbuster declined to purchase Netflix for only $50 million. Netflix and Blockbuster began to separate and increase and decrease in revenues, respectively, was 2003. Attached below as the second link is a chart showing the stocks of Blockbuster and Netflix. As Blockbuster profits began to plummet, they got rid of late fees, which cost them around $300 million annually. They ended up reintroducing late fees in 2010 in attempt to make up for those losses. By 2010, Blockbuster was only worth $24 million.

It is very apparent that Blockbuster’s success is in the past and Netflix and similar companies are on the rise and are the future of movie rentals. Netflix’s ideas and strategies of delivering movies to consumer’s houses without adding on any unfair late fees have made Blockbusters services obsolete. Although Blockbuster has filed for chapter 11 and is attempting to stage a comeback by virtually copying Netflix through their “online DVD rentals”, it is very hard to imagine this happening: currently one Netflix share is worth $72 and Blockbuster’s is worth 35 cents. Although Blockbusters original business plan was very successful, companies must always tend to their consumers and think of ways to please them. No amount of money can fix a broken business scheme. It is clear that Blockbuster’s successful days are behind them.

http://www.bgr.com/2010/02/25/blockbuster-continues-its-decline-posts-425m-loss-in-q4/

Graph- http://consumerist.com/2010/09/everything-you-really-need-to-know-about-blockbusters-bankruptcy.html

Muller Martini closing plant in my hometown

Muller Martini, a Newport News location of a company that produces printing equipment, will shut down in early 2012. This will result in 160 lost jobs. Muller Martini is a Swiss-based company who opened its first factory in Newport News in 1973. This is a result of a fundamental issue with supply and demand. This factory produces machinery for publishing companies, and the world demand for paper processing materials has been decreasing for many years. The Internet and other forms of media have decreased the need for printed material, and this lack of demand is closing this plant. Because they are closing the plant, we can assume that their level of profits will be leading them beyond the shutdown point. The shutdown point is reached when revenues just cover variable costs. The shutdown point can also be reached when losses are equal to fixed costs. This business has reached the point where they will be losing too much money in the long run and they cannot cover their costs, this is called the critical zero profit level. This firm will have the lowest losses in the long run if they exit the market. The result of this situation is the firm exiting the market. Exiting the market is usually considered a last resort, but for this firm the time has come. This firm has been successful in the area for almost 40 years. 40 years is a relatively long lifespan for a business. In the past, this firm has attempted to rescue itself with previous layoffs of workers. The company laid off 79 workers in may 2009. This unfortunately has not been enough to lower costs of production. The fact that businesses go out of business may be shocking, but it is a fact of the economic system that thousands of businesses enter and exit the market each year. Muller Martini is going to exit the market in three phases. They will layoff workers in three groups. This company will still be operating other factories in other parts of the country, but for the local economic system there will be an impact. They can move the very limited orders to their other facilities and save money by not operating extra manufacturing facilities. These 160 people will have to find alternate employment. The 290,000 square foot manufacturing facilities will be vacant until another firm sets up shop there. We can hope that whatever happens there in the future will help to be a boost to the local economy.

Source: Daily Press

Manufacturing layoffs: Muller Martini will close its Newport News manufacturing plants by Jan. 2012; 160 will lose jobs. - dailypress.com