Anyone who lives in the South West can argue that they get a raw deal. Not only are the average salaries in this region lower than in the rest of the United Kingdom, but their water bills are 40% higher than those elsewhere in England and Wales. South West Water is the only provider of water in the South West and hence there are no other competitors that households or businesses can switch to, despite the extortionate prices.

Many households and businesses in the region are struggling to cope with the unfair bills, as people are forced to sacrifice other things in order to find the money. Furthermore, it can be argued that these higher bills are actually used for the benefit of everyone else in the United Kingdom. Since privatisation, South West Water are responsible for cleaning and maintaining over one third of the UK’s beaches and the prices they are charged by SW Water reflect this £2 billion cost. Moreover, with a relatively low population, this large cost cannot be spread across many people. Instead, the small population has to pay larger bills. A hairdresser, who does use a lot of water, is finding herself crippled by water bills of some £2,500. And this bill will pay to clean the beaches in the South West so that people living elsewhere can benefit from the beautiful surroundings.

There is now wide recognition of how unfair this scenario is and proposals have been suggested, ranging from a government grant (hardly likely given the state of public finances) to a levy on other regions’ bills to compensate SW Water for their clean-up costs. However, no decision has been made about how to progress and so for now, residents of the region must just simply grin and bear it, while sacrificing expenditure on other areas and seeing residents from across the UK benefit from their sacrifice.

P.S. If you hadn’t guessed it, yes I do live in the South West!

Why is water so expensive in the South West? BBC News (13/7/10)
North Devon MP Nick Harvey tackles unfair South West Water charges Barnstaple People (14/7/10)

I hardly need to say that the title is no reflection on England’s World Cup performance - or lack thereof. Instead, it relates to the opportunity for more people to watch the Premier League, which I’m sure most of you’ll agree is good news!

In 2007, BT, Virgin, Top up TV and Setanta complained about Sky’s dominance within the pay-TV industry. We considered Sky’s dominance and the subsequent investigation by Ofcom in a posting in March: Is the sky falling in?. Ofcom ruled that Sky would have to reduce the price it charged to other broadcasters to show its premium sports channels.

In more recent developments, there has now been a deal signed between Sky and BT, which will allow BT Vision customers to view Sky Sports 1 and Sky Sports 2 from August 1st 2010 (just in time for the start of the new football season, for those that are interested!) There are still ongoing debates about how much BT will charge for these new channels and it will depend largely on the outcome of the Sky’s appeal against Ofcom’s decision about the prices Sky has set. Although this may be good news to BT Vision viewers (excluding the fact that the deal does not include Sky Sports 3 and 4), there are many who agree on just one point: the regulator got it wrong. The Premier League could lose millions due to a loss of exclusivity and BSkyB argues that Ofcom didn’t even have the right to make the ruling.

These mini disputes are likely to go on for some time, but at least we can be certain about one thing: Ofcom’s decision can’t be any worse than Capello’s decisions in South Africa! Bring on the Premier League!!

Articles
Sky Sports 1 and 2 available to BT vision customers BBC News (28/6/10)
BT to offer Sky Sports in time for soccer season Reuters (28/6/10)
BT signs BSkyB deal to show Sky Sports channels BusinessWeek, Simon Thiel (28/6/10)
Sky forced to cut price of sports channels Telegraph (31/3/10)
New ruling lets fans see Premier League on TV for just £15 a month London Evening Standard, Jonathan Prynn (31/3/10)
Virgin media cuts Sky Channels prices Digital Spy, Andrew Laughlin (11/6/10)
BSkyB, BT and FAPL join Ofcom appeal Broadband TV News (11/6/10)
Sky wrongfoots rival BT by raising prices Guardian, Richard Wray (30/6/10)
BT charges £16.99 for Sports 1 and 2 BBC News (1/7/10)
BT launches cheap package to view Sky Sports Guardian, Lisa Bachelor (1/7/10)
BT Wades Into Pay-TV Sports Market Sky News, Nick Phipps and Emma Rowley (1/7/10)
Sky Sports broadcast costs set to rise BBC News, John Moylan (1/7/10)

Ofcom report
Delivering consumer benefits in Pay TV Ofcom Press Release (31/3/10)

In 2007, BT, Virgin, Top up TV and Setanta complained about Sky’s dominance within the pay-TV industry. Sky, who have an estimated 85% share of the market were investigated by Ofcom and a decision has now been made. Sky will be forced to reduce the price it charges to other Broadcasters for showing premium sport channels. The wholesale price of Sky Sports 1 and 2 (two of my favourite channels!!) will each be reduced by just over 23% to £10.63 a month each. The idea is that this decision will benefit consumers by increasing choice. However, Sky argues that it will be to the ‘detriment of consumers’ as incentives to invest and take risks will be blunted.

Furthermore, there are also concerns that it will mean less money going into sport. Rugby, football, tennis etc benefit from some very lucrative TV rights deals and if Sky is forced to reduce prices (it is appealing the decision), then the value of these deals is likely to decline, which may lead to less investment in grass-routes participation.

Whilst progress has been made within this area, critics argue that Ofcom have not gone far enough and should have extended their decision to more sport channels (not just Sky Sports 1 and 2) and even to the premium movie channels. This would again increase consumer choice and provide more people with access to premium TV. This would work alongside more innovation within the pay-TV industry, which has seen Sky being given permission to offer pay-TV services on freeview, which will open up pay-TV to millions more consumers. Whilst no action has been taken regarding Sky’s dominance of premium movie channels, this issue has been referred to the Competition Commission. Is Sky’s dominance over sporting events about to come to an end?

Articles
BSkyB ordered to cut sports channels rates Reuters, Kate Holton (31/3/10)
Sky forced to cut price of sports channels Telegraph (31/3/10)
Consumers are big winners in BSkyB ruling Financial Times, Ben Fenton and Andrew Parker (31/3/10)
BSkyB should shake hands and move on Financial Times (31/3/10)
Sky told to cut wholesale prices by regulator Ofcom BBC News (31/3/10)
Ofcom v Sky BBC News blogs: Peston’s Picks, Robert Peston (31/3/10)
BSkyB ‘restricting competition’ BBC Today Programme (31/3/10)
Ofcom orders Sky Sports price cut Guardian, Mark Sweney (31/3/10)
Sky ruling: Culture Secretary challenges Tories to back Ofcom Guardian, Mark Sweney (31/3/10)
Sky forced to cut the price for top sports events: Q and A Telegraph, Rupert Neate (31/3/10)
New ruling lets fans see Premier League on TV for just £15 a month London Evening Standard, Jonathan Prynn (31/3/10)
Regulator sets the fuse for shake-up of pay-TV Independent, Nick Clark (31/3/10)

Ofcom report
Delivering consumer benefits in Pay TV Ofcom Press Release (31/3/10)
Pay TV Statement Overview (31/3/10)
Pay TV Statement Summary (pdf file) (31/3/10)
Pay TV Statement Full document (pdf file) (31/3/10)

Increasing traffic on the roads is observable by everyone and government policy is focused on reducing the demand for road space, rather than increasing its supply. One method has been to improve public transport and make it a viable substitute for car travel. Private costs of motoring have increased, but if there is no viable alternative, people will continue to demand car travel. Investment in buses and trains has improved their quality: they are more frequent, more reliable, arguably more comfortable and supposed to be part of an integrated transport policy. Local bus services provide a crucial link for local communities, but it is these services that are now facing problems.

In your economics lectures, you may have looked at local bus services, when you considered monopolies, oligopolies and possibly contestable markets. Oligopolies, whilst closer to the monopoly end of the market spectrum can be very competitive, but are also open to collusion and anti-competitive practices. The local bus sector has been referred to the Competition Commission by the Office of Fair Trading through complaints of ‘predatory tactics’ by companies. It is argued that local bus services, by limiting competition, are causing prices to rise and the quality of service to fall. One key issue is that those companies established in the market are alleged to be acting aggressively towards smaller bus companies and thus reducing competition in the industry. A low number of bids for supported service contracts in many areas, local bus routes dominated by a few large companies and predatory actions by incumbent firms are all complaints that this industry is facing.

This investigation is especially important, given the amount of public money that goes into the bus industry: £1.2bn. Investigations found that in areas of limited competition, prices were 9p higher. A number of take-overs have contributed to this situation. Two-thirds of bus services are controlled by only five operators. This limits competition in the market and hence is argued to be against public interest. Yet, industry representatives still argue that the market is competitive. Read the following articles and answer the questions about this issue. Was the OFT right to to initiate this investigation?

Local buses to be re-regulated BBC News (27/9/09)
OFT refers UK bus market to Competition Commission Dow Jones Newswires, Kaveri Nihthyananthan (7/1/10)
Office of Fair Trading prompts probe into bus services Guardian (7/1/10)
Trasport groups fear OFT competition probe over buses Telegraph, Alistair Osborne (4/1/10)
Bus industry competition queried BBC News (20/8/09)
OFT refers bus industry on poor service and prices Times Online, Francesca Steele (7/1/10)
Inquiry into local bus market ‘may delay investment’ Scotsman, Hamish Rutherford (5/1/10)

When we examine industries and markets in economics, one of the key things we look for is how competitive the market is. A question that we ask is, under what type of market structure is this firm operating? To answer this, we will need information on the number of competitors, the products, prices, advertising, profits, efficiency and how the firms are likely to behave in both the short and long run.

A lot of the time firms are independent: their behaviour doesn’t affect the actions of rivals. This is usually because each firm within the industry only has a relatively small market share. If one firm changes the price, or how much it spends on advertising/product development, this won’t have an impact on the market equilibrium.

However, it’s not as easy for an oligopolist, as interdependence is a key characteristic of this market structure. As such, it’s not surprising that firms have a decision to make: should they compete with the other firms and try to maximise our own profits, or should they collude and try to maximise industry profits? Whilst collusion is illegal in many countries, activities such as price fixing do go ahead and it can be difficult to prove, as the ACCC is finding with a petrol price-fixing case in Melbourne. In 49 of the 53 weeks studied, when one of the big petrol stations changed their price, the industry followed these movements exactly.

As competition in a market decreases, it could be a sign that an oligopoly is developing. A few firms are beginning to dominate the market and this could spell trouble for customers. Indeed, in the Australian banking sector, there are concerns that an oligopoly will develop if more competition is not introduced. The Deputy Chairman of the Australian Bankers’ Association said: “We’ve got four major banks that are repricing all their commercial and small business customers’ margins upwards”. Customers may therefore lose out with higher prices and less choice, while the dominant firms see their profits growing.

The market structure under which a firm is operating will have a major impact on its decisions and the outcomes in the market, as shown in the articles below.

ACCC on safe political ground in targeting the Mobil takeover The Australian Business, John Durie and Martin Collins (3/12/09)
Nippon Steel Chairman warns of Australian oligopolies Market Watch, Stephen Bell (10/11/09)
Government’s bank guarantee hurting BOQ: Libby Business Day (2/12/09)
Regulators to scrutinise BHP and Rio’s Australian joint venture Financial Times, William McNamara and Elizabeth Fry (7/12/09)
Crackdown on price fixing draws mixed reaction The Korea Herald (7/12/09)

Setanta is a sports broadcaster that emerged from an Irish dance hall in West London in the 1990s. Since 2004 it has grown rapidly, acquiring major sporting rights and acting as something of a rival to Sky. However, Setanta has now gone into administration following the collapse of talks with a US investor, its failure to pay a number of sporting organisations and the loss of its English Premier League games. Having less than 60% of the annual subscribers needed, and competing against Sky, it is hardly surprising that this broadcaster has now exited the industry. But, what are the reasons behind this collapse? Marketing, advertising, pricing, the recession or dominance by its competitors? What will be the impact of this bankruptcy on its employees, the Pay TV market, sporting organisations and its customers?

Offer made for stake in Setanta BBC News (12/6/09)
Troubled sports channel stops broadcasting CBBC Newsround (24/6/09)
Setanta goes off air with loss of more than 200 jobs Guardian, James Robinson, Leigh Holmwood (23/6/09)
Blavatnik offers Setanta lifeline BBC News, Robert Peston (12/6/09)
Last-ditch effort to save Setanta BBC News (9/6/09)
Football’s minnows braced to take full force of Setanta collapse Guardian, Owen Gibson (24/6/09)
UFC: After Setanta divorce where now: Bravo, Viring, Channel 5 or Sky? Telegraph, Gareth Davies (23/6/09)
Setanta sports taken off air in Britain Times Online, Dan Sabbagh (23/6/09)

Walk down any street in the country, and you’re bound to see a Sky dish. With subscribers still increasing, a viewing target of 10 million by 2010 and revenue increasing to £1.4 billion, it seems that Sky TV is hardly suffering from the current ‘challenging conditions’ besetting so many firms.

Enter Ofcom, the independent regulator and competition authority for the UK’s communication industries that has been investigating the UK Pay TV industry since 2007. A consultation was published on the 26th June 2009 in which Ofcom indicated that BSkyB should be forced to make its premium sports and film channels available to rival broadcasters in a bid to ‘promote choice and innovation’. The articles below look at this conflict.

Sky may have to share TV channels BBC News (26/6/09)
Ofcom may set Sky’s wholesale prices Digital Spy, Andrew Laughlin (25/6/09)
Ofcom proposes measures to improve competition in pay TV Ofcom (26/6/09)
Pay TV Phase three document: Proposed remedies Ofcom Consultation (26/6/09)
BSkyB in war of words with Virgin Media and BT Guardian, Leigh Holmwood (24/6/09)
BSkyB keeps Premier League rights BBC Sport, Football (3/2/09)
Sky will fight Ofcom over Premium TV Tech Radar, Patrick Goss (26/6/09)
Pay TV market investigation: Consultation document Ofcom (18/12/07)
Sky asked to open up Premium sports and movies Times Online, Peter Stiff (26/6/09)
All believers in a competitive market must back Ofcom to take on Sky Telegraph, Neil Berkett (26/6/09)
Ofcom: Sky not playing fair with premium content Tech Radar, Patrick Goss (26/06/09)

The European Competition authorities have just imposed a record fine of €1.06 billion for anti-competitive practices under Article 82 of the Treaty of Amsterdam. The fine was imposed on Intel, the world’s largest computer chip producer, for paying computer manufacturers to favour its chips over those of its main rival AMD. But were its practices against the interests of the consumer, as the European Commission and AMD maintain, or did it simply result in lower prices, as Intel maintains? The following articles explore the issues.

Intel on offensive in EU case BBC News (23/9/09)
Intel Fined $1.45 Bln by EU for Abuse of Dominance Announcement of fine by EU Competition Commissioner, Neelie Kroes: YouTube (13/5/09)
A billion-euro question The Economist (14/5/09) (see also)
EU fines Intel $1.45b for sales tactics The Chronicle Herald (Canada) (17/5/09)
Why Intel was fined in Europe — but not the U.S. USA Today: TechnologyLive (15/5/09)
EU slaps a record fine on Intel (plus video) BBC News (13/5/09) (see also)
European commission and Intel fine: Q and A Guardian (13/5/09)
Intel’s chipped credibility CNN Money, Fortune (14/5/09)
Intel–Anti-competitive or No? BusinessWeek (13/5/09)
Anti-competitve Intel fined record €1bn Times Online (14/5/09)

Passenger groups have reacted angrily to the raising of off-peak fares by South West Trains by around 20% on many journeys. The train company has increased unregulated fares significantly where there is little competition, but appears to have limited the increases on journeys where there is competition. Is this an abuse of their monopoly position?

Train firm accused of abusing monopoly Times Online (8/5/07)
Price hike angers train watchdog BBC News Online (8/5/07)

A recent report from the Office of Fair Trading has argued that the NHS may be paying up to £500m too much for branded medicines for drugs companies and has recommended reforms to the system. The Pharmaceutical Price Regulation Scheme (PPRS) sets a cap on the profits that any drug company can earn on branded medicines from the NHS and the OFT is recommending changes to the system. They argued that there are “a number of drugs where prices are significantly out of line with patient benefits”.

NHS ’spending £500m a year too much on drugs’ Guardian (20/2/07)
NHS paying too much for drugs BBC News Online (20/2/07)
Drugs giants to be told to ‘cut prices for NHS’ Times Online (20/2/07)
NHS ‘overspending by millions’ on drugs Telegraph (20/2/07)
Drugs price fixing scheme costs health service millions, says OFT Guardian (20/2/07)
Drugs buddies Guardian - comment is free blog (20/2/07)
Prescribing prices BBC News Online - Robert Peston blog (20/2/07)