In a blog post on 1 May this year, What’s really on offer?, we looked at the ‘super-complaint‘ by Which? to the Competition and Markets Authority (CMA) about supermarket special offers. The complaint referred to bogus price reductions, ‘cheaper’ multi-buys which weren’t cheaper, smaller pack sizes and confusing special offers. Under the rules of super-complaints, the CMA had 90 days from the receipt of the complaint on 21 April 2015 to publish a response. It has now done so.
Here is an extract from its press release:
In its investigation the CMA found examples of pricing and promotional practices that have the potential to confuse or mislead consumers and which could be in breach of consumer law. Where there is evidence of breaches of consumer law this could lead to enforcement action.
However, it has concluded that these problems are not occurring in large numbers across the whole sector and that generally retailers are taking compliance seriously to avoid such problems occurring. The CMA also found that more could be done to reduce the complexity in unit pricing to make it a more useful comparison tool for consumers. …Nisha Arora, CMA Senior Director, Consumer, said:
‘We have found that, whilst supermarkets want to comply with the law and shoppers enjoy a wide range of choices, with an estimated 40% of grocery spending being on items on promotion, there are still areas of poor practice that could confuse or mislead shoppers. So we are recommending further action to improve compliance and ensure that shoppers have clear, accurate information.
Although the CMA believes that misleading pricing is not as widespread as consumer groups have claimed, 
in some cases the supermarkets could be fined. The CMA also says that it will work with the supermarkets to eliminate misleading information in promotions.
In addition it recommends that the Department for Business, Innovation and Skills (BIS) publishes guidelines for supermarkets on displaying unit prices in a consistent way. It also recommends that legislation should be simplified on how items should be unit-priced.
The following articles look at the implications of the CMS’ findings.
Articles
Some UK supermarket promotions are misleading, watchdog says Financial Times, Andrea Felsted (16/7/15)
Shoppers beware: Grocers ‘confusing’ consumers with special offers, unit pricing, says government investigation International Business Times, Graham Lanktree (16/7/15)
Supermarket pricing: CMA finds ‘misleading tactics BBC News, Brian Milligan (16/7/15)
How special are special offers? BBC News, Kamal Ahmed (16/7/15)
CMA publications
Response to super-complaint: link to elements of report CMA (16/7/15)
Questions
- Give some examples of the types of promotion used by supermarkets?
- In what ways might such promotions be misleading?
- How is competition from Aldi and Lidl affecting pricing and promotions in the ‘big four’ supermarkets (Tesco, Sainsbury’s, Asda and Morrisons)?
- What cost and other advantages do Aldi and Lidl have over the big four? How might the big four reduce costs?
- Are misleading promotions systemic across the industry?
- How can behavioural economics help to explain consumers’ response to promotions in supermarkets?
- What is meant by ‘heuristics’? How might supermarkets exploit consumers’ use of heuristics in their promotions?
Many Chinese people have taken to investing on the Chinese stock market, seeing it as a way of making a lot of money quickly. From October 2014 to June this year the market soared, rising by 126% from 2290 to 5166.
More and more people used their savings to buy stocks and China now has over 90 million individual investors. And it was not just savings that were invested. Increasingly people have been borrowing money to invest, seeing it as an easy way of making money. Unlike stock markets in developed countries, where the majority of shares are held by financial organisations, such as pension funds, holdings by individuals account for about 80% of stocks on the Chinese market.
But since mid-June, share prices have plummeted by 32% (see chart). People have thus seen a huge fall in the value of their savings, while many others have found their shareholdings worth less than their debts. The fall, like the rise that preceded it, has been driven by speculation, fuelled by first optimism and then pessimism.
The Chinese government is worried that the fall might dampen investment and economic growth. It has thus has been supplying liquidity to various institutions to buy shares, but this has had little effect and is dismissed by many as meddling. What is more it could expose companies which take advantage of the liquidity to greater risk.
So serious has been the rout, that over 50% of listed companies have halted trading on the mainland Chinese stock exchanges.
So just why has there been this bubble and why has it burst? What implications will it have for (a) China and (b) the rest of the world? The following articles explore the issues.
China’s stock market fall hits small investors BBC News Magazine, John Sudworth (7/7/15)
China Stocks Plunge as State Support Fails to Revive Confidence Bloomberg (8/7/15)
Chinese stocks are crashing Business Insider UK, Myles Udland, David Scutt (8/7/15)
Shanghai stocks plunge, over 1,200 Chinese companies halt trading Economic Times of India (8/7/15)
Everyone freaking out about China’s stock-market crash is missing one thing Business Insider UK, Elena Holodny (7/7/15)
China’s stock market has lost nearly a third of its value in a month Vox, Timothy B. Lee (8/7/15)
Chinese leaders may be undermined as investors suffer stock market slide The Guardian, Emma Graham-Harrison (8/7/15)
Opinion: China’s stock-market crash is just beginning MarketWatch, Howard Gold (8/7/15)
What does China’s stock market crash tell us? BBC News (22/7/15)
Questions
- What is meant by a ‘bubble’? Has the recent performance of the Shanghai Stock Market been an example of a bubble?
- Is the current fall in share prices in China an example of overshooting? Explain how you would decide.
- Distinguish between stabilising and destabilising speculation. Why does destabilising speculation not go on for ever?
- What is meant by the ‘stock market wealth effect’? How is the fall in the Chinese stock market likely to affect consumption and investment in China? How does the proportion of assets held in the form of shares affect the magnitude of the effect?
- What are the likely implications of the fall in the Chinese stock market for the rest of the world?
- Why has the Hong Kong stock market not behaved in the same way as the Shanghai market?
- What have the Chinese authorities been doing to arrest the fall in share prices? How likely are they to succeed?
It was argued in an earlier blog on the Greek debt crisis that a deus ex machina was needed to find a resolution to the impasse between Greece and its creditors. The most likely candidate for such as role was the IMF.
Three days before the Greek referendum on whether or not to accept the Troika’s proposals, the IMF has stepped onto the stage. To the undoubted surprise of the other two partners in the Troika (the European Commission and the ECB), the IMF argues that Greece’s debts are unsustainable and that much more is needed than a mere bailout (which simply rolls over the debt).
According to the IMF, Greece needs €52bn of extra funds between October 2015 and December 2018, large-scale debt relief, a 20-year grace period before making any debt repayments and then 
debt repayments spread over the following 20 years. In return, Greece should commit to supply-side reforms to cut out waste, reduce bureaucracy, improve tax collection methods and generally improve the efficiency of the economic system.
It would also have to agree to the previously proposed primary budget surplus (i.e. the budget surplus excluding debt repayments) of 1 per cent of GDP this year, rising to 3.5 per cent in 2018.
So it this what commentators have been waiting for? What will be the reaction of the Greeks and the other two partners in the Troika? We shall see.
Articles
IMF says Greece needs extra €50bn in funds and debt relief The Guardian. Phillip Inman, Larry Elliott and Alberto Nardelli (2/7/15)
IMF: 3rd Greek bailout would cost €52bn. Or more? Financial Times, Peter Spiegel (2/7/15)
IMF: Greece needs to reform for sustainable debt, financing needs rising CNBC, Everett Rosenfeld (2/7/15)
The IMF has made an obvious point about Greece’s huge debt. Here’s why it still matters Quartz, Jason Karaian (3/7/15)
Greece: when is it time to forgive debt? The Conversation, Jagjit Chadha (2/7/15)
IMF Analysis
Greece: Preliminary Draft Debt Sustainability Analysis IMF (2/7/15)
Preliminary Debt Sustainability Analysis for Greece IMF (25/6/15)
Questions
- To which organisations is Greece indebted? What form to the debts take?
- To what extent is Greece’s current debt burden the result of design faults of the euro?
- What are the proposals of the IMF? What effect will they have on the Greek economy if accepted?
- How would the IMF proposals affect aggregate demand (a) directly; (b) compared with the proposals previously on the table that Greece rejected on 26 June?
- What would be the effects of Greek exit from the euro (a) for Greece; (b) for other eurozone countries?
- What bargaining chips can Greece deploy in the negotiations?
- Explain what is meant by ‘moral hazard’. Where in possible outcomes to the negotiations may there be moral hazard?
- What has been the impact of Greek austerity measures on the distribution of income and wealth in Greece?
- What are the practicalities of pursuing supply-side policies in Greece without further dampening aggregate demand?
The negotiations between Greece and the ‘troika’ of creditors (the IMF, the European Commission and the ECB) have seen many twists and turns before breaking down on 26 June. Throughout, both sides have sought to give as little as possible while seeking a compromise. Both sides have claimed that their position is reasonable, even though a gulf has remained between them.
What has been playing out is a high-stakes game, where the optimum outcome for each side is quite different.
Greece seeks bailout terms that would allow it to achieve a smaller primary budget surplus (but still a surplus in the midst of a deep recession). The surplus would be achieved largely through tax rises on the wealthy rather than further cuts that would hit the poor hard. It is also seeking a substantial amount of debt forgiveness to make servicing the remaining debt possible.
The troika is seeking a larger budget surplus than the Greeks are willing to contemplate. This, it maintains, should be achieved largely through additional cuts in government expenditure, including further reductions in pensions and in public-sector wages.
Both sides used threats and promises as the negotiations became more and more acrimonious.
The troika threatened to withhold the final €7.2bn of the bailout necessary to pay the €1.6bn due to the IMF on 30 June, unless the Greeks accepted the terms of the austerity package put to them. The Greek Prime Minister, Alexis Tsipras, in rejecting the proposals, called a referendum on the package. This threatens the stability of the eurozone as a No vote, if it led to a Greek exit from the eurozone, could undermine confidence in monetary union. After all, if Greece could be forced out, other countries facing severe difficulties might also be forced out at some point in the future. Once a country leaves the eurozone, the monetary union becomes more like a system of pegged exchange rates. And pegged exchange rates are open to destabilising speculation at times of economic divergence.
A Greek exit from the euro (dubbed ‘Grexit’) is seen as undesirable by most Greeks and by most politicians in the rest of Europe. The optimum for both sides collectively would be a compromise, which saw more modest cuts by Greece and the eurozone remaining intact. By both sides seeking to maximise their own position, the Nash equilibrium is certainly not the best outcome.
But as long as the troika believes that the Greeks are likely to vote Yes to the proposed bailout terms, it still hopes to get the outcome that is best from its point of view – an outcome that would probably involve regime change. And as long as the Greek government hopes that a No vote will force the troika to think again and come back with less austere proposals, it still hopes to get the outcome that is best from its point of view. But the outcome of this game of ‘chicken’ could well be Grexit and a Nash equilibrium that neither side wants.
But while the endgame is being played out by politicians, people in Greece are suffering. Policies of severely depressing aggregate demand to turn a large budget deficit into a primary budget surplus have led to the economy shrinking by 26%, overall unemployment of 27% and youth unemployment of over 60%. The Greeks truly believe themselves to be stuck between a rock and a hard place.
The following articles look at the nature of the ‘game’ being played and at the effects on the Greek economy, both of the proposed austerity package proposed by the troika and Grexit. They also look at the knock-on effects for the eurozone, the EU and the global economy.
Can game theory explain the Greek debt crisis? BBC News Magazine, Marcus Miller (26/6/15)
Against the Grain: What Yanis Varoufakis can learn from a real game theory master – Nicola Sturgeon City A.M., Paul Ormerod (24/6/15)
John Nash’s Game Theory and Greece Bloomberg, Mohamed A. El-Erian (29/5/15)
The Greek crisis: that 1931 moment The Economist, Buttonwood column (23/6/15)
How game theory explains Grexit and may also predict Greek poll outcome The Conversation, Partha Gangopadhyay (1/7/15)
Greece debt crisis: Tsipras may resign if Greeks vote yes BBC News (30/6/15)
Greek debt crisis: Is Grexit inevitable? BBC News. Paul Kirby (29/6/15)
Existential threat to euro from Greek exit BBC News, Robert Peston (29/6/15)
How I would vote in the Greek referendum The Guardian, Joseph Stiglitz (29/6/15)
Greece in chaos: will Syriza’s last desperate gamble pay off? The Guardian, Paul Mason (29/6/15)
What happens if Greece defaults on its International Monetary Fund loans? The Telegraph, Mehreen Khan (30/6/15)
For Greece’s international creditors, regime change is the ultimate goal The Telegraph, Jeremy Warner (29/6/15)
Europe has suffered a reputational catastrophe in Greece The Telegraph, Ambrose Evans-Pritchard (2/7/15)
Questions
- What is meant by a primary budget surplus?
- What was the troika’s proposal on the table on the 26 June that was rejected by the Greek government?
- What was the Greek government’s proposal that was rejected by the troika?
- Explain the decision trees outlined in the first BBC article below.
- In terms of game theory, what form of game is being played?
- Are the negotiations between the Greek government and the troika a prisoners’ dilemma game? Explain why or why not.
- Does the game being played between the SNP and the Conservative government in the UK offer any useful lessons to both sides in the negotiations over Greece’s possible bailout and its terms?
- Does a No vote in the referendum on 5 July imply that Greece must leave the euro? Explain.
- What would be the effects of further austerity measures on aggregate demand? What benefits to the Greek economy could be achieved from such measures?
- Why may pegged exchange rates be regarded as the worst of both worlds – a single currency in a monetary union and floating exchange rates?
At the G7 conference in Bavaria on 7 and 8 June 2015, it was agreed to phase out the use of fossil fuels by the end of the century. But despite this significant objective, there were no short-term measures put in place to start on the process of achieving this goal. Nevertheless, the agreement contained commitments to further developments in carbon markets, elimination of fossil fuel subsidies, incentives for the development of green energy and support for developing countries in reducing hydrofluorocarbons.
The agreement also sent a strong message to the 21st United Nations International Climate Change conference scheduled to meet in Paris from 30 November to 11 December 2015. The G7 communiqué states that binding rules would be required if the target was to be met.
The agreement should enhance transparency and accountability including through binding rules at its core to track progress towards achieving targets, which should promote increased ambition over time. This should enable all countries to follow a low-carbon and resilient development pathway in line with the global goal to hold the increase in global average temperature below 2°C.
But many environmentalists argue that a more fundamental approach is needed. This requires a change in the way the environment is perceived – by both individuals and politicians. The simple 
selfish model of consumption to maximise consumer surplus and production to maximise profit should be rejected. Instead, the environment should be internalised into decision making.
What is more, there should be an integral ecology which brings together a wide range of disciplines, including economics, in analysing the functioning of societies and economies. Rather than being seen merely as a resource to be exploited, respect and care for the environment should be incorporated into our whole decision-making process, along with protecting societies and cultures, and rejecting economic systems that result in a growing divide between rich and poor.
In his latest encyclical, On care for our common home, Pope Francis considers integral ecology, not just in terms of a multidiciplinary approach to the environment but as an approach that integrates the objectives of social justice and care for the environment into an overarching approach to the functioning of societies and economies. And central to his message is the need to change the way human action is perceived at a personal level. Decision making should be focused on care for others and the environment not on the selfish pursuit of individual gain.
With a change in heart towards other people and the environment, what would be seen as externalities in simple economic models based on rational self-interested behaviour become internal costs or benefits. Care and compassion become the drivers for action, rather than crude self interest.
A key question, of course, is how we get here to there; how society can achieve a mass change of heart. For religious leaders, such as the Pope, the approach centres on spiritual guidance. For the secular, the approach would probably centre on education and the encouragement for people to consider others in their decision making. But, of course, there is still a major role for economic instruments, such as taxes and subsidies, rules and regulations, and public investment.
Articles
G7 leaders agree to phase out fossil fuels by end of centuryEU Observer, Peter Teffer (8/6/15)
Integral Ecology Approach Links ‘Welfare of God’s People and God’s Creation’ Catholic Register (11/6/15)
President’s Corner Teilhard Perspective, John Grim (May 2015)
In his encyclical on climate change Pope Francis reveals himself to be a master of scientific detail Washington Post, Anthony Faiola, Michelle Boorstein and Chris Mooney (18/6/15)
Pope Francis Calls for Climate Action in Draft of Encyclical New York Times, Jim Yardley (15/6/15)
Pope Francis letter on climate change leaked: Draft Vatican encyclical released three days early Independent, Kashmira Gander and Michael Day (15/6/15)
The Pope is finally addressing the gaping hole in the Judaeo-Christian moral tradition Independent, Michael McCarthy (15/6/15)
Pope Francis warns of destruction of Earth’s ecosystem in leaked encyclical The Guardian, Stephanie Kirchgaessner and John Hooper (16/6/15)
Explosive intervention by Pope Francis set to transform climate change debate The Observer, John Vidal (13/6/15)
Pope Francis’ Leaked Encyclical Draft Attributes Climate Change To Human Activity Huffington Post, Antonia Blumberg (15/6/15)
Pope Francis’ Integral Ecology Huffington Post, Dave Pruett (28/5/15)
Videos
Pope Francis: Climate change mostly man-made BBC News, Caroline Wyatt (18/6/15)
Pope urges action on global warming in leaked document BBC News, Chris Cook (16/6/15)
Questions
- What do you understand by ‘integral ecology’?
- Is an integrated approach to the environment and society consistent with ‘rational’ behaviour (a) in the narrow sense of ‘rational’ as used in consumer and producer theory; (b) in a broader sense of making actions consistent with goals?
- Can cost–benefit analysis be used in the context of an integrated and cross-disciplinary approach to the environment and society?
- What types of incentives would be useful in achieving the approach proposed by Pope Francis?
- Why do many companies publicly state that they pursue a policy of corporate responsibiliy?
- To what extent does it make sense to set targets for the end of this century?
- In what crucial ways might GDP need to be adjusted if it is to be used as a measure of the success of the approach to society, the economy and the environment as advocated by Pope Francis?
In a blog post on 1 May this year, What’s really on offer?, we looked at the ‘super-complaint‘ by Which? to the Competition and Markets Authority (CMA) about supermarket special offers. The complaint referred to bogus price reductions, ‘cheaper’ multi-buys which weren’t cheaper, smaller pack sizes and confusing special offers. Under the rules of super-complaints, the CMA had 90 days from the receipt of the complaint on 21 April 2015 to publish a response. It has now done so.
in some cases the supermarkets could be fined. The CMA also says that it will work with the supermarkets to eliminate misleading information in promotions.
