The articles below examine the rise of the sharing economy and how technology might allow it to develop. A sharing economy is where owners of property, equipment, vehicles, tools, etc. rent them out for periods of time, perhaps very short periods. The point about such a system is that the renter deals directly with the property owner – although sometimes initially through an agency. Airbnb and Uber are two examples.
So far the sharing economy has not developed very far. But the development of smart technology will soon make a whole range of short-term renting contracts possible. It will allow the contracts to be enforced without the need for administrators, lawyers, accountants, bankers or the police. Payments will be made electronically and automatically, and penalties, too, could be applied automatically for not abiding by the contract.
One development that will aid this process is a secure electronic way of keeping records and processing payments without the need for a central authority, such as a government, a bank or a company. It involves the use of ‘blockchains‘ (see also). The technology, used in Bitcoin, involves storing data widely across networks, which allows the data to be shared. The data are secure and access is via individuals having a ‘private key’ to parts of the database relevant to them. The database builds in blocks, where each block records a set of transactions. The blocks build over time and are linked to each other in a logical order (i.e. in ‘chains’) to allow tracking back to previous blocks.
Blockchain technology could help the sharing economy to grow substantially. It could significantly cut down the cost of sharing information about possible rental opportunities and demands, and allow minimal-cost secure transactions between owner and renter. As the IBM developerWorks article states:
Rather than use Uber, Airbnb or eBay to connect with other people, blockchain services allow individuals to connect, share, and transact directly, ushering in the real sharing economy. Blockchain is the platform that enables real peer-to-peer transactions and a true ‘sharing economy’.
Article
New technology may soon resurrect the sharing economy in a very radical form The Guardian, Ben Tarnoff (17/10/16)
Blockchain and the sharing economy 2.0 IBM developerWorks, Lawrence Lundy (12/5/16)
2016 is set to become the most interesting year yet in the life story of the sharing economy Nesta, Helen Goulden (Dec 2015)
Blockchain Explained Business Insider, Tina Wadhwa and Dan Bobkoff (16/10/16)
A parliament without a parliamentarian Interfluidity, Steve Randy Waldman (19/6/16)
Blockchain and open innovation: What does the future hold Tech City News, Jamie QIU (17/10/16)
Banks will not adopt blockchain fast Financial Times, Oliver Bussmann (14/10/16)
Blockchain-based IoT project does drone deliveries using Ethereum International Business Times, Ian Allison (14/10/16)
Questions
- What do you understand by the ‘sharing economy’?
- Give some current examples of the sharing economy? What other goods or services might be suitable for sharing if the technology allowed?
- How could blockchain technology be used to cut out the co-ordinating role carried out by companies such as Uber, eBay and Airbnb and make their respective services a pure sharing economy?
- Where could blockchain technology be used other than in the sharing economy?
- How can blockchain technology not only record property rights but also enforce them?
- What are the implications of blockchain technology for employment and unemployment? Explain.
- How might attitudes towards using the sharing economy develop over time and why?
- Referring to the first article above, what do you think of Toyota’s use of blockchain to punish people who fall behind on their car payments? Explain your thinking.
- Would the use of blockchain technology in the sharing economy make markets more competitive? Could it make them perfectly competitive? Explain.
Short-termism is a problem which has dogged British firms and is part of the explanation of low investment in the UK. Shareholders, many of which are large pension funds and other financial institutions, are more concerned with short-term returns than long-term growth and productivity. Likewise, senior managers’ rewards are often linked to short-term performance rather than the long-term health of the company.
But the stakeholders in companies extend well beyond owners and senior managers. Workers, consumers, suppliers, local residents and the country as a whole are all stakeholders in companies.
So is the current model of capitalism fit for purpose? According to the new May government, workers and consumers should be represented on the boards of major British companies. The Personnel Today article quotes Theresa May as saying:
‘The people who run big businesses are supposed to be accountable to outsiders, to non-executive directors, who are supposed to ask the difficult questions. 
In practice, they are drawn from the same, narrow social and professional circles as the executive team and – as we have seen time and time again – the scrutiny they provide is just not good enough.
We’re going to change that system – and we’re going to have not just consumers represented on company boards, but workers as well.’
This model is not new. Many countries, such as France and Germany, have had worker representatives on boards for many years. There the focus is often less on short-term profit maximisation and more on the long-term performance of the company in terms of a range of indicators.
Extending this model to stakeholder groups more generally could see companies taking broader social objectives into account. And the number of companies which put corporate social responsibility high on their agenda could increase significantly.
And this approach can ultimately bring better returns to shareholders. As the first The Conversation article below states:
This is something that research into a ‘Relational Company’ model has found – by putting the interests of all stakeholders at the heart of their decision making, companies can become more competitive, stable and successful. Ultimately, this will generate greater returns for shareholders.
While CSR has become mainstream in terms of the public face of some large corporations, it has tended to be one of the first things to be cut when economic growth weakens. The findings from Business in the Community’s 2016 Corporate Responsibility Index suggest that many firms are considering how corporate responsibility can positively affect profits. 
However, it remains the case that there are still many firms and consumers that care relatively little about the social or natural environment. Indeed, each year, fewer companies take part in the CR Index. In 2016 there were 43 firms; in 2015, 68 firms; in 2014, 97 firms; in 2013, 126 firms.
In addition to promising to give greater voice to stakeholder groups, Mrs May has also said that she intends to curb executive pay. Shareholders will be given binding powers to block executive remuneration packages. But whether shareholders are best placed to do this questionable. If shareholders’ interests are the short-term returns on their investment, then they may well approve of linking executive remuneration to short-term returns rather than on the long-term health of the company or its role in society more generally.
When leaders come to power, they often make promises that are never fulfilled. Time will tell whether the new government will make radical changes to capitalism in the UK or whether a move to greater stakeholder power will remain merely an aspiration.
Articles
Will Theresa May break from Thatcherism and transform business? The Conversation, Arad Reisberg (19/7/16)
Democratise companies to rein in excessive banker bonuses The Conversation, Prem Sikka (14/3/16)
Theresa May promises worker representatives on boards Personnel Today, Rob Moss (11/7/16)
If Theresa May is serious about inequality she’ll ditch Osbornomics The Guardian, Mariana Mazzucato and Michael Jacobs (19/7/16)
Theresa May should beware of imitating the German model Financial Times, Ursula Weidenfeld (12/7/16)
Questions
- To what extent is the pursuit of maximum short-term profits in the interests of (a) shareholders; (b) consumers; (c) workers; (d) suppliers; (e) society generally; (f) the environment?
- How could British industry be restructured so as to encourage a greater proportion of GDP being devoted to investment?
- How would greater flexibility in labour markets affect the perspectives on company performance of worker representatives on boards?
- How does worker representation in capitalism work in Germany? What are the advantages and disadvantages of this model? (See the panel in the Personnel Today article and the Financial Times article.)
- What do you understand by ‘industrial policy’? How can it be used to increase investment, productivity, growth and the pursuit of broader stakeholder interests?
In the following article, Joseph Stiglitz argues that power rather than competition is a better starting point for analysing the working of capitalism. People’s rewards depend less on their marginal product than on their power over labour or capital (or lack of it).
As inequality has widened and concerns about it have grown, the competitive school, viewing individual returns in terms of marginal product, has become increasingly unable to explain how the economy works.
Thus the huge bonuses, often of millions of pounds per year, paid to many CEOs and other senior executives, are more a reflection of their power to set their bonuses, rather than of their contribution to their firms’ profitability. And these excessive rewards are not competed away.
Stiglitz examines how changes in technology and economic structure have led to the increase in power. Firms are more able to erect barriers to entry; network economies give advantages to incumbents; many firms, such as banks, are able to lobby governments to protect their market position; and many governments allow powerful vested interests to remain unchecked in the mistaken belief that market forces will provide the brakes on the accumulation and abuse of power. Monopoly profits persist and there is too little competition to erode them. Inequality deepens.
According to Stiglitz, the rationale for laissez-faire disappears if markets are based on entrenched power and exploitation.
Article
Monopoly’s New Era Chazen Global Insights, Columbia Business School, Joseph Stiglitz (13/5/16)
Questions
- What are the barriers to entry that allow rewards for senior executives to grow more rapidly than median wages?
- What part have changes in technology played in the increase in inequality?
- How are the rewards to senior executives determined?
- Provide a critique of Stiglitz’ analysis from the perspective of a proponent of laissez-faire.
- If Stiglitz analysis is correct, what policy implications follow from it?
- How might markets which are currently dominated by big business be made more competitive?
- T0 what extent have the developments outlined by Stiglitz been helped or hindered by globalisation?
For years, the UK consumer organisation, Which?, has exposed misleading supermarket pricing practices. These include bogus price reductions, ‘cheaper’ multi-buys, smaller pack sizes and confusing special offers. Claiming that these practices are still continuing, Which? has made a super-complaint (available to designated consumer bodies) to the competition regulator, the Competition and Markets Authority (CMA).
Commenting on this action, Which? executive director, Richard Lloyd said:
“Despite Which? repeatedly exposing misleading and confusing pricing tactics, and calling for voluntary change by the retailers, these dodgy offers remain on numerous supermarket shelves. Shoppers think they’re getting a bargain but in reality it’s impossible for any consumer to know if they’re genuinely getting a fair deal.
We’re saying enough is enough and using one of the most powerful legal weapons in our armoury to act on behalf of consumers by launching a super-complaint to the regulator. We want an end to misleading pricing tactics and for all retailers to use fair pricing that people can trust.”
The CMA will consider the issues raised under the super-complaint to establish whether any of them are significantly harming the interests of consumers. It will publish a response within 90 days from the receipt of the complaint on 21 April 2015. The possible outcomes include:
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recommending the quality and accessibility of information for consumers is improved |
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encouraging businesses in the market to self-regulate |
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making recommendations to government to change the legislation or public policy |
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taking competition or consumer enforcement action |
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instigating a market investigation or market study |
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a clean bill of health |
Some 40% of groceries are sold on promotion. Supermarkets are well aware that consumers love to get a bargain and use promotions to persuade consumers to buy things they might not otherwise have done.
What is more, consumer rationality is bounded by the information and time available. People are often in a hurry when shopping; prices change frequently; people are often buying numerous low-value items; and they don’t know what competitors are charging. People may thus accept an offer as genuine and not spend time investigating whether it is so. Supermarkets know this and use all sorts of tactics to try to persuade people that they are indeed getting a bargain.
Videos
Supermarkets Face Super-Complaint On Pricing Sky News (21/4/15)
UK supermarkets face possible probe over pricing practices Reuters, Neil Maidment (21/4/15)
Which? launches ‘super-complaint’ against supermarkets BBC News, Stephanie McGovern (21/4/15)
Articles
UK supermarkets dupe shoppers out of hundreds of millions, says Which? The Guardian, Rebecca Smithers (21/4/15)
Supermarkets face inquiry into ‘rip-offs’ The Telegraph, Dan Hyde (21/4/15)
15 supermarket rip-offs that led to an inquiry The Telegraph, Dan Hyde (21/4/15)
What does Which?’s supermarket pricing complaint mean for you? The Guardian (21/4/15)
Supermarkets hit back over Which? report on pricing Financial Times (21/4/15)
Press release
Which? ‘super-complains’ about misleading supermarket pricing practices Which? (21/4/15)
CMA case page
Groceries pricing super-complaint Competition and Markets Authority (21/4/15)
Questions
- Give examples of supermarket offers that are misleading.
- Why are supermarkets able to ‘get away with’ misleading offers?
- How can behavioural economics help to explain consumer behaviour in supermarkets?
- Identify some other super-complaints have been made to the CMA or its predecessor, the Office of Fair Trading. What were the outcomes from the resulting investigations.
- What is meant by ‘heuristics’? How might supermarkets exploit consumers’ use of heuristics in their promotions?
Most observers were once again left stunned by how much media companies are willing to pay to secure the rights to broadcast live games in the English Premier League (EPL). At the same time the method used to sell those rights is being investigated by Ofcom following complaints made by Virgin Media. Virgin Media actually requested that the auction was halted until the investigation was completed.
Between them, BSkyB and BT Sport have paid £5.136bn to purchase the rights to broadcast live matches in the EPL over a three-year period beginning in the 2016–17 season. This is a 71% increase in the price paid for the previous three-year deal which runs from 2013 to 2016 and cost £3.018bn. However, the headline figure hides some big differences between the amounts paid by the two companies.
How exactly are the rights sold? The broadcast rights for the 168 live matches are split up into seven different packages labelled A through to G and are placed in seven different auctions. The type of auction used by the EPL is a sealed bid auction. Interested companies are invited to make an offer for any of the packages. However, when they make a bid they do not know (a) if other firms have also made a bid and (b) the size of any other bids. Another constraint is that one firm is not allowed to win more than five of the auctions. When the auction finishes the EPL only releases information about the winning offers. It never provides information about any of the failed bids.
Some of the packages are worth more than others to the broadcasters. The first five packages (A–E) each contain the rights for 28 games per season, while the other two packages (F and G) contain the rights for 14 matches. In some of the packages all of the games kick off at the same time and on the same day. For example all 28 games in package ‘A’ kick off at 12.30pm on a Saturday. Others contain more of a mixture. Some of the games in Package E take place on a Monday evening. while others take place on a Friday evening. Given the potential advertising revenue and number of viewers, the most valuable package is D, which has 28 games that kick off at 4.00pm on a Sunday.
Another factor that influences the value of a package is the number of ‘first picks’. In any given week, more than one broadcaster might want to screen the same match. To overcome this problem, each package is allocated a number of first, second, third, fourth and fifth ‘picks’. For example, package D comes with 18 first and 10 fourth round picks. This means that whichever company wins this package will get first choice on the games they want to broadcast on 18 occasions a year. Package C contains no ‘first picks’ but offers 15 second, 4 fourth and 7 fifth round picks. There is also a maximum and a minimum limit on the number of times games including a specific team can be broadcast.
BSkyB won the auctions for packages A, C, D, E and G for a price of £4.17bn. This means that it will be paying £1.396bn to broadcast 126 live games per season. This is an average payment of £11,031,700 per game. In the previous deal it paid £760million for the rights to broadcast 116 live games per season. This is an average payment of £6,551,724 per game. The new deal represents a cost increase of 68% per game. However, the number of first picks BskyB has secured in the new deal increases from 20 to 26.
BTSport won the auctions for packages B and F for a price of £960m. This means that it will be paying £320m for the rights to broadcast 42 live games per season. This is an average payment of £7,619,048 per game. In the previous deal it paid £246 million per year for the rights to broadcast 38 live games per season. This is an average payment of £6,473,684 per game. The new deal represents an increase in costs of 17.7% per game for BT Sport – a much lower figure than for BSkyB.
BSkyB has stated that it will cover the increase in the price it has paid for the rights with efficiency savings. However, many observers believe that it will ultimately result in significant increases in the subscription rates for SkySports. The impact of the deal on BskyB’s profit may well depend on the willingness of its customers to pay higher prices. What is the price elasticity of demand for SkySports at the current subscription rates they are charging?
There is still some uncertainty about the deal following Ofcom’s decision to investigate the legitimacy of the method used by the EPL to auction the rights. Virgin Media made a formal complaint in September 2014 about the collective selling of the live broadcast rights and argued that it was in breach of competition law. The investigation by Ofcom will make a judgment about whether the joint selling of the rights by the EPL is a contravention of Chapter I of the Competition Act 1998 and/or Article 101(1) of the Treaty on the Functioning of the European Union. An initial announcement will be made in March.
Premier League set to announce record £4.4bn TV rights deal BBC Sport (10/2/15)
Premier League TV rights: What does deal mean for fans & clubs BBC Sport, Ben Smith (11/2/15)
How Sky paid £4m more per Premier League match than BT The Telegraph, Ben Rumsby (11/2/15)
Premier League TV deal: Windfall must benefit grass roots and England The Telegraph, Henry Winter (10/2/15)
Sky and BT retain Premier League TV rights for record £5.14bn The Guardian, Owen Gibson (10/2/15)
Premier League TV rights: Sky Sports and BT Sport win UK broadcasting rights as price tops £5billion Independent, Tom Peck (10/2/15)
Questions
- Draw a demand curve for package A and package D of the live broadcast rights. Which one do you think will be furthest to the right? Explain your answer.
- What are the potential benefits to the EPL of not revealing the details of any of the losing bids?
- Explain how the price elasticity of demand is a useful concept for assessing the impact of the new deal on the profits of BSkyB and BTSport.
- Given the impact of the new deal of the size of Parachute payments, what impact might it have on the level of competitive balance in the Championship?
- Find out the key provisions of Chapter I of the Competition Act 1998 and Article 101(1) of the Treaty on the Functioning of the European Union.
The articles below examine the rise of the sharing economy and how technology might allow it to develop. A sharing economy is where owners of property, equipment, vehicles, tools, etc. rent them out for periods of time, perhaps very short periods. The point about such a system is that the renter deals directly with the property owner – although sometimes initially through an agency. Airbnb and Uber are two examples.
One development that will aid this process is a secure electronic way of keeping records and processing payments without the need for a central authority, such as a government, a bank or a company. It involves the use of ‘blockchains‘ (see also). The technology, used in Bitcoin, involves storing data widely across networks, which allows the data to be shared. The data are secure and access is via individuals having a ‘private key’ to parts of the database relevant to them. The database builds in blocks, where each block records a set of transactions. The blocks build over time and are linked to each other in a logical order (i.e. in ‘chains’) to allow tracking back to previous blocks.
