Nokia is finding out just how competitive the phone industry is, as it sees its third quarter figures come in at a loss. Google and Apple have seen their market shares rise and this has had an adverse effect on the Finnish company, Nokia. This goes some way to backing up the job losses seen earlier in the year, when 7000 jobs were cut and there was a re-allocation of workers towards ‘smartphones’.
Despite Nokia’s disappointing results in this sector, it has seen growth in its sales of other more simple phones, illustrating its ability to focus on this aspect of the market. Its sales were higher than forecast at 107 million handsets in the third quarter, showing some signs of a changing trend for the firm. However, with competition ever increasing, Nokia will need to consider its future strategy very carefully.
Nokia reports lower-than-estimated loss as profit forecast for phone unit Bloomberg, Diana Ben-Aaron (20/10/11)
Nokia swings to loss in third quarter BBC News (20/10/11)
Nokia boosted by sales of cheap handsets Financial Times, Daniel Thomas (20/10/11)
Nokia beats forecasts with sales of 107m phones Guardian, Juliette Garside and Charles Arthur (20/10/11)
Nokia prepares for ‘solid’ windows phone launch Telegraph, Matt Warman (25/10/11)
Questions
- How would you describe Nokia’s strategy of focusing on cheaper and simpler phones?
- Would you say Nokia’s strategy is sensible? What factors will determine its success?
- How have Apple and Google managed to expand their market share and become serious competitors to firms like Nokia?
- Into which market structure would you classify the phone industry?
In 2009, Nudge: Improving Decisions about Health, Wealth, and Happiness was published. This book by Richard Thaler and Cass R. Sunstein examines how people are influenced to make decisions or change behaviour.
According to Thaler and Sunstein, people can be ‘nudged’ to change their behaviour. For example, healthy food can be placed in a prominent position in a supermarket or healthy snacks at the checkout. Often it is the junk foods that are displayed prominently and unhealthy, but tasty, snacks are found by the checkout. If fashion houses ceased to use ultra thin models, it could reduce the incentive for many girls to under-eat. If kids at school are given stars or smiley faces for turning off lights or picking up litter, they might be more inclined to do so.
The UK government has been investigating the use of ‘nudges’ as a way of changing behaviour, and the House of Lords Science and Technology Committee has been considering the question. It has just published its report, Behaviour Change. The summary of the report states that:
The currently influential book Nudge by Richard Thaler and Cass Sunstein advocates a range of non-regulatory interventions that seek to influence behaviour by altering the context or environment in which people choose, and seek to influence behaviour in ways which people often do not notice. This approach differs from more traditional government attempts to change behaviour, which have either used regulatory interventions or relied on overt persuasion.
The current Government have taken a considerable interest in the use of “nudge interventions”. Consequently, one aim of this inquiry was to assess the evidence-base for the effectiveness of “nudges”. However, we also examined evidence for the effectiveness of other types of policy intervention, regulatory and non-regulatory, and asked whether the Government make good use of the full range of available evidence when seeking to change behaviour.
The report finds that nudges
… used in isolation will often not be effective in changing the behaviour of the population. Instead, a whole range of measures – including some regulatory measures – will be needed to change behaviour in a way that will make a real difference to society’s biggest problems.
So is there, nevertheless, a role for nudges in changing behaviour – albeit alongside other measures? Read the report and the articles below to find out!
Articles
Lords report calls for regulation over persuasion to improve public health Wales Online, David Williamson (19/7/11)
Government’s ‘nudge’ approach to health is not enough, according to House of Lords and Work Foundation HR Magazine, David Woods (20/7/11)
How can I tell if I’ve been nudged Independent, Natalie Haynes (20/7/11)
Healthier behaviour plans are nudge in the wrong direction, say peers Guardian, Sarah Boseley (19/7/11)
‘Nudge’ is not enough, it’s true. But we already knew that Guardian, Jonathan Rowson (19/7/11)
Nudge not enough to change lifestyles – peers BBC News, Nick Triggle (19/7/11)
Why a nudge is not enough to change behaviour BBC News, Baroness Julia Neuberger (19/7/11)
House of Lords findings: why green Nudges are not enough The Green Living Blog, Baroness Julia Neuberger (19/7/11)
Lords Science and Technology Sub-Committee publish report on Behaviour Change YouTube, Baroness Julia Neuberger (14/7/11)
Report
Press Release Lords Science and Technology Select Committee (19/7/11)
Behaviour Change Lords Science and Technology Select Committee (online version) (19/7/11)
Behaviour Change Lords Science and Technology Select Committee (PDF version) (19/7/11)
Questions
- When may a nudge (a) be enough, (b) not be enough to change behaviour?
- What instruments does the government have to change behaviour?
- Distinguish between a ‘technical’ and an ‘adaptive’ solution to changing behaviour. Give examples.
- Why might adaptive solutions provide more of a challenge to policymakers than technical solutions.
- Can a nudge ever be transformative?
Apple and Google: two well known brands that appear everywhere, but which is the most valuable? For the past few years, the answer to that question has been Google, but with recent product developments, including the iPad, Apple has overtaken Google to become the world’s most valuable brand. This information comes from a recent study by Millward Brown, which found that Apple’s brand is now worth some £94 billion ($153.3bn), which is up about 84% on the previous year.
The study showed that of the top 10 brands, 6 were technology and telecoms companies, which is further evidence of the move towards the technology-based economy. Another interesting trend to come out of the report is the development of the emerging markets, with 6 more companies coming from emerging economies compared to last year. Indeed 12 of the top global companies came from China. Besides Google and Apple, who occupy the top 2 places, other companies in the top 10 include Coca-cola, McDonalds, IBM, Microsoft and General Electric. The following articles look at this overtaking move by Apple.
Apple brand value at $153 billion overtakes Google for top spot Bloomberg, Tim Culpan (9/5/11)
Jobs well done: Apple overtakes Google as the world’s most valuable brand Daily Mail (9/5/11)
Apple overtakes Google as top brand: Study Market Watch, Dan Gallagher (9/5/11)
Success of iPad helps Apple topple Google as No 1 brand Independent, Stephen Foley (10/5/11)
Apple overtakes Google as world’s ‘most valuable’ brand Telegraph (9/5/11)
Questions
- How reliable is this study and how is the value of a brand measured?
- What factors have contributed to Apple’s climb up the tables? Is it because of Apple’s good work or problems faced by Google?
- What are the main trends to come out of the study?
- What might explain the growing presence of fast food companies in the top 100?
- Why is there a growing presence of companies from emerging markets in the top 100?
- Should Google be concerned about this report and what could be done to reverse the situation next year?
In March 2009, the Bank of England’s base rate was slashed to 0.5% in a bid to boost aggregate demand and stimulate the UK economy. And there it has remained for almost 2 years and as yet, no change is in sight. In the February 2011 meeting of the Monetary Policy Committee (who are responsible for setting interest rates to keep inflation on target), the decision was to keep interest rates at 0.5% rather than raise them to tackle high and rising UK inflation. Those in favour of keeping interest rates at this record low argue that any increase could damage the UK’s ability to recover and may lead to the dreaded double-dip recession. This is of particular concern given the economy’s performance in the last quarter of 2010.
However, one group that will certainly not be happy is the savers. With instant-access savings accounts paying on average just 0.84% before tax and with inflation at 3.7%, savers aren’t just not gaining much interest, but are actually seeing the value of their money in real terms fall. Howard Archer of HIS Global Insight said:
“For now, we retain our view that the Bank of England will hold off from raising interest rates until the latter months of the year. Even if interest rates do rise in the near term, the likelihood is still that they will rise only gradually and remain very low compared to past norms.
Monetary policy will need to stay loose for an extended period to offset the impact of the major, sustained fiscal squeeze. Consequently, we retain the view that interest rates will only rise to 2pc by the end of 2012.”
Following some speculation that the Bank of England may succumb to the pressure of inflation and hike up interest rates (markets had priced in a 20% chance of a rate rise), sterling did take a hit, but after the decision to keep rates at 0.5%, sterling recovered against the dollar. There is a belief amongst some traders that rates will rise in May, but others believe rates may remain at 0.5% until much later in 2011, as the country aims to avoid plunging back into recession. Of 49 economists that responsed to a poll by Reuters, three quarters of them said that rates would rise by the end of 2011, with median forecasts predicting a rise around November. This is certainly a space to watch, as it has implications for everyone in the UK and for many in countries around the world.
BOE leaves bank rate unchanged at 0.5% at Feb meeting Automated Trader (10/2/11)
Economists predict interest rates will rise in November Telegraph, Szu Ping Chan (11/2/11)
UK May rate hike view holds firm after BOE Reuters, Kirsten Donovan (10/2/11)
Interest rates: What the economists say Guardian (10/2/11)
Fixed rate mortgages becoming more expensive BBC News (10/2/11)
Bank rate: savers’ celebrations on hold Telegraph, Richard Evans (10/2/11)
Inflation fears turn up heat ahead of bank rate decision City AM, Julian Harris (10/2/11)
Sterling takes BOE in its stride, higher rate talk aids Reuters, Anirban Nag (10/2/11)
Bank of England holds interest rates of 0.5% Telegraph, Emma Rowley (10/2/11)
Questions
- Why are interest rates such an important tool of monetary policy? Think about which variables of aggregate demand will be affected by the Bank of England’s decision.
- What is the relationship between interest rates and inflation?
- What explanation is there for the fall in the value of sterling following speculation that interest rates may rise? Why did sterling recover after the Bank of England’s decision?
- How has the recent speculation affected fixed rate mortgages?
- What does the Telegraph article about “savers’ celebrations on hold” mean about the ‘real value’ of money and savings?
- What are (a) the arguments for keeping interest rates at 0.5% and (b) the arguments for raising interest rates? Who wins and loses in each case?
- Are there any other government policies that could be used to combat inflation, without creating the possibility of a double-dip recession? Why haven’t they been used?
Here’s an interesting example of oligopoly – one you probably haven’t considered before. It’s the art market. And it’s not just one market, but a whole pyramid of markets. At the bottom are the ‘yearning masses’ of penny-poor artists, from students to those struggling to make a living from their art, with studios in their attic, garden shed or kitchen table. At the top of the pyramid are those very few artists that can earn fantastic sums of money by selling to collectors or top galleries. Then there are all the layers of markets in between, where artists can earn everything from a modest to a reasonable income.
The pyramid is itself depicted as a work of art, which you can see in the linked article below. It’s worth studying this piece of art carefully as well as reading the article.
A guide to the market oligopoly system Reuters, Felix Salmon (28/12/10)
Questions
- Identify the increasing barriers to entry as you work up the art market pyramid.
- Are there any other market imperfections in the art market that you can identify from the diagram?
- What are the key differences between the ‘primary market, tier 1’, the ‘primary market, tier 2’ and ‘the secondary market’?
- Are artists ‘rational maximisers’? If so, what is it they are trying to maximise? If not, why not?
- How would you set about determining the ‘worth’ of a piece of art? How do possible future value of a piece of art determine its present value?