Here’s an exciting bit of news. Lake Eyre in South Australia is filling and the Lake Eyre Yacht Club’s sailing regatta started on 5 July. So what, you may ask! Well, Lake Eyre is in the middle of one of the driest deserts in the world. It virtually never rains there and most of the time, the ‘lake’ is one huge dry salt pan.
But just a few times per century, the rainfall many kilometres away is heavy enough to fill the dry river beds of Cooper Creek, Finke River, Georgina River and Diamantina River. These ‘rivers’ drain about one sixth of the whole of Australia (about the size of Germany, France, Italy combined) – but a sixth where rainfall is normally very low. But this season’s rains have been exceptionally high; the rivers are flowing – and the lake is filling.
When the lake does fill, it teems with life. Fish eggs that have lain buried in the salt for years hatch. Sea birds fly in nearly 1000 kilometres from the Southern Ocean. And it’s then that the enthusiasts come to play.
What’s this got to do with economics? Well economics is about scarcity and choice. Many of the choices we make are not simple buying and selling choices. Many clubs and other organisations thrive on the enthusiasm of their members. They’re not there to make money but certainly add to people’s ‘utility’. And enthusiasm, and hope, is what the members of the Lake Eyre Yacht Club have in abundance. Let’s hope they get lots of utility from sailing in the desert over the coming weeks.
Articles
Outback Sailors 10 News (6/7/10)
Floods and boat race brings life to desert lake ABC News (7/7/10)
Flightseeing Lake Eyre Stuff.co.nz, James Shrimpton (25/5/10)
Gone (not fishing) flying over Lake Eyre Australian Daily Telegraph, Maralyn Parker (6/6/10)
The Lake Eyre Yacht Club Lounge of the Lab Lemming, Chuck Magee (21/3/10)
Lake Eyre Regatta ExplorOz, The Landy blog (14/6/10)
Boom follows boom in the Lake Eyre Basin ABC Western Queensland, Julia Harris (23/3/10)
Entries flood in for rare outback regatta ABC News (23/6/10)
Yacht club sails into history with a desert regatta The Age (7/7/10)
Chasing water to Lake Eyre ABC Rural, Caitlyn Gribbin (6/7/10)
Lake Eyre brims with life ABC News, Paul Lockyer (15/6/10)
Yachting regatta in Australian desert for first time in 20 years Telegraph, Bonnie Malkin (7/7/10)
Plain sailing for desert regatta Gulf Times (7/7/10)
Information sites
Lake Eyre Yacht Club
Current Lake Status Lake Eyre Yacht Club
Lake Eyre Wikipedia
Lake Eyre Rita’s Outback Guide
Questions
- What attitude do the members of Lake Eyre Yacht Club have towards risk and uncertainty?
- How would you set about estimating the consumer surplus that members are likely to gain from attending the regatta and sailing on the lake?
- How price elastic would you expect the demand for and supply of services to be, such as ferry crossings and accommodation?
- What business opportunities are likely to be associated with sailing on the lake? Would it be ‘rational’ to set up such a business?
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)
Questions
- Ofcom’s initial ruling forced Sky to reduce prices. What will be the impact on a demand curve? How might this affect consumer choice?
- Sky has 85% of the market. Would you class it as a monopoly? Explain your answer. Is this agreement between Sky and BT likely to reduce or increase Sky’s market power?
- How might other Pay-TV providers be affected by this decision?
- What are the disputes surrounding Ofcom’s decision? Why might the Premier League lose so much revenue?
Russia is now ranked alongside Zimbabwe on the worldwide corruption index, despite the fact that the Russian authorities have been doing their best to tackle it. The Russian bribery ‘industry’ is worth some $300 billion per year and those who can be bought include several government officials.
The Russian economy is in much need of foreign investment, but the growing world of bribery is deterring international businesses from investing in Russia. Not only will they face the costs of building and running the business, but they are also likely to face substantial costs in trying to get the paperwork through, as IKEA found. Having said that they would never resort to bribery, IKEA had to pay $4 million for investment in local infrastructure and donate a further $1 million for local government projects just to get the 300+ permits they needed to begin construction. This then led to further bribes and a number of lawsuits. For some companies, the delays caused by not paying a bribe may actually cost more than the bribe itself.
The following webcast and articles look at the case of IKEA and the push by foreign businesses to avoid the clutches of Russian bribery.
Webcast
Russian bribes culture hits international business BBC News (14/5/10)
Articles
Foreign firms pledge not to give bribes in Russia BBC News (21/4/10)
IKEA masters rules of Russian business The Moscow Times (14/5/10)
Russians are spending twice as much on bribes Prime Time Russia (13/5/10)
Data Source
Corruption Perceptions Index 2009 Transparency International 2009
Questions
- Why is Russia in need of significant foreign investment? How would it help the economy?
- Can we classify IKEA (or any other company that uses bribery) as a risk-lover? Explain your answer.
- If a foreign firm wants to invest in Russia, which type of expansion do you think would be the easiest and the least open to bribery?
- IKEA began building without the necessary permits, but then ‘the bureaucrats took advantage of the situation’. Was IKEA operating under conditions of risk or uncertainty?
- In the article ‘IKEA masters rules of business’, Lennart Dahlgren said: “If we had waited to receive them all, we would have lost years”. What economic concept is being referred to?
- To what extent is government intervention and international co-operation needed to tackle corruption in Russia?
Whilst a new version of Windows may make the headlines, it’s not Windows that is the main source of profit for Microsoft: it’s Office, with it’s suite of appplications – Word for word processing, Excel for spreadsheets, PowerPoint for presentations, Access for databases, FrontPage for web pages and Outlook for e-mail. But Office is under threat from two sources.
First, despite that fact that Microsoft’s share of the office applications market has remained fairly constant at around 94%, it is facing increased competition from free alternatives, such as Google docs and Google Apps, and OpenOffice from Oracle (see also).
Second, the demands of users are changing. With the growing use of social networking and file sharing, and with a more mobile and dispersed workforce, Microsoft Office needs to adapt to this new environment.
With the launch of Office 2010, these issues are being addressed. The following articles examine what Microsoft has done and whether it is a good business model
Microsoft Office 2010 takes aim at Google Docs BBC News (11/5/10)
Office 2010: banking on Apps Sydney Morning Herald, David Flynn (11/5/10)
Microsoft’s two-pronged strategy for Office 2010 BBC News, Tim Weber (12/5/10)
Revamped Microsoft Office Will Be Free on the Web New York Times, Ashlee Vance (11/5/10)
Microsoft Predicts Fastest-Ever Adoption of New Office Software Bloomberg Businessweek, Dina Bass (12/5/10)
Questions
- Discuss the business logic of giving away products free.
- Discuss the likely success of Microsoft’s response to the changing market conditions for office applications software.
- Explain what is meant by ‘cloud computing’. What opportunities does this provide to Microsoft and what are the threats?
- What is meant by ‘network economies’? How do these benefit Microsoft? How is Sharepoint relevant here?
- Are network economies likely to increase or decrease for Microsoft in the future?
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)
Questions
- To what extent will Ofcom’s decision to force Sky to reduce prices lead to an increase in consumer choice? Why is consumer choice good?
- Why has Sky been able to charge such high prices in the past, in particular for sports channels?
- According to the BBC News article, Sky shares were the biggest risers on the FTSE by midday on the day of the announcement. Why do you think this was the case?
- Would a similar decision on premium movie channels significantly increase consumer choice?
- Into which market structure does the Premium TV industry best fit? Consider the characteristics of the pay-TV industry. Into which market structure does it best fit?
- Why may Ofcom’s decision lead to less investment in sport at the grass roots?