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?
Families in the UK seemed to have been squeezed in all areas. With incomes flat, inflation rising, petrol and bills high, there seems to be a never ending cycle of price rises without the corresponding increase in incomes. This has been confirmed by the latest figures released from the big six energy companies, whose profit margins have risen from £15 per customer in June to £125 per customer per year. This is assuming that prices remain the same for the coming year.
The regulator, Ofgem has said that profit margins will fall by next year and that they are ensuring that price comparisons between the big energy companies become much easier to allow consumers to shop around. It is a competitive market and yet due to tariffs being so complicated to understand, many consumers are simply unable to determine which company is offering them the best deal. There is certainly not perfect knowledge in this market. Tim Yeo, the Chair of the Energy and Climate Change Committee said the profit margins were:
‘Evidence of absolutely crass behaviour by the energy companies, with a jump in prices announced in the last few months ahead of what will be a winter in which most families face their highest ever electricity and gas bills’
Ofgem will publish proposals later this year with suggestions of how to make the market more competitive. We have already seen in the blog “An energetic escape?” how Ofgem is hoping to reduce the power of the big six by forcing them to auction off some of the electricity they generate. The aim is to free up the market and allow more firms to enter. With the winter fast approaching and based on the past 2 years of snow and cold weather, it is no wonder that households are concerned with finding the best deals in a bid to reduce just one of their bills. The following articles consider this issue.
Energy price hikes see profits soar The Press Association (14/10/11)
Energy suppliers’ profit margins eight times higher, says regulator Ofgem Telegraph (14/10/11)
Energy firms’ profit margins soar, Ofgem says BBC News (14/10/11)
Energy firms’ profits per customer rise 733%, says Ofgem Guardian, Dan Milmo and Lisa Bachelor (14/10/11)
Regulator proposes radical change to energy market Associated Press (14/10/11)
Energy bills face overhaul in first wave of reform Reuters, Paul Hoskins (14/10/11)
Ofgem tells energy companies to simplify tariffs Financial Times, Michael Kavanagh (14/10/11)
You can’t shop around in an oligopoly Financial Times, William Murray (13/10/11)
Questions
- What type of market structure best describes the energy market?
- Of the actions being taken by Ofgem, which do you think will have the largest effect on competition in the market?
- Are there any other reforms you think would be beneficial for competition?
- Why is transparency so important in a market?
- What barriers to entry are there for potential competitors in the energy market?
- Why do you think profit margins are so high in this sector?
Demand and supply determine prices, but when it comes to factors of production, such as labour, their ‘price’ is largely influenced by their productivity. This helps to explain why doctors are paid more than cleaners and Premiership footballers more than amateurs. But, can it really explain a £50 million transfer price for Fernando Torres, as he moves from Liverpool to Chelsea? Undoubtedly he’s a good footballer, but are his skills worth the price paid? The same question can be asked about David Luiz – a price of £25 million; Andy Carroll – a price of £36 million and a bargain price for Luis Suarez – a mere £23 million! How can teams, such as Chelsea afford to spend so much money, despite making a loss of £70.9 million in the year to June 2010? How much would they have lost had they not won the Premier league and the FA cup?
With the country facing the possibility of returning to recession and the trouble that Portsmouth FC found itself in last season, UEFA’s ‘financial fair play’ rules seemed like a good idea. But, they appear to have been thrown out the window. £200 million was spent on a handful of footballers, as libraries across the UK are shut down due to a lack of funds. The Premier League in the UK generated a higher income than any other, equal to £2.3 billion. However, 14 of our clubs made substantial losses. The amount owed to banks or the owners backing these clubs came in at a mere £3 billion. As the big clubs in the UK push up the prices, more and more ‘small’ clubs are being competed out of the market.
Torres makes record move from Liverpool to ChelseaBBC Sport(31/1/11)
Chelsea and Liverpool drive astonishing £134 million manic Monday Telegraph, Jason Burt (1/2/11)
Champions Chelsea report £70.9 million loss BBC News (31/1/11)
Chelsea announces 70.9 million pound annual loss despite winning Premier League and FA Cup The Canadian Press, Stuart Condie (1/2/11)
Financial restraint goes out of the window when the big clubs struggle Guardian, David Conn (1/2/11)
Questions
- How are the prices of footballers determined? Use a diagram to illustrate your answer.
- What factors explain why Premier League footballers are paid so much more than those in the Conference?
- What type of market structure is the UK football league?
- As prices are bid upwards, is there an argument that smaller clubs are being competed out of the transfer market? What type of market structure is football becoming?
- How is that Chelsea can make £70 million loss but still have the finance to spend £50 million on new players?
- What policies could be used to ensure lower prices are paid for footballers? Would they be effective and are they needed?
With news of the economy contracting in the previous quarter, it was perhaps a surprise to some that BSkyB has seen growth in its customer numbers to above 10 million: much of this increase due to growth in broadband numbers. In the second half of 2010, BSkyB reported that revenues increased by 15% to £3.2bn and their pre-tax profits were also on the way up to £467m. These latest figures are likely to put increasing pressure on News Corp’s takeover bid for the shares they do not own in BSkyB (61%), as share prices increase by 2%. Last summer, a bid of 700p per share was rejected and while both companies did agree to work together to determine if a future merger was viable, these higher share prices put BSkyB in a much stronger position.
However, before anything else happens, Rupert Murdoch’s company is waiting for regulatory approval from Ofcom for this takeover. BBC reports sugges that Ofcom has made an:
“unambiguous recommendation that News Corp’s plan to acquire all of BSkyB should be referred to the Competition Commission for further investigation.”
The Culture Secretary, Jeremy Hunt, has spoken of his intention to refer this potential merger to the Competition Commission, following Ofcom’s recommendation. There are concerns about the impact on competition and Rupert Murdochs’ increased influence over public opinion, if this merger were to go ahead. Any delays in finalizing a deal could benefit BSkyB, if their financial performance continues. Analysts suggest that the delay could be 6 months, while any investigation takes place. If profits continue to rise, share prices may also go up, requiring higher and higher bids by News Corp. Watch this space!
BSkyB profits soar 26% to £520m putting pressure on NewsCorp to increase takeover bid Daily Mail (27/1/11)
BSkyB reports big jump in profits BBC News (27/1/11)
BSkyB spends £7m on News Corp bid Guardian, Mark Sweney (27/1/11)
BSkyB result to highlight pressure on News Corp Reuters, Kate Holton (26/1/11)
HD TV, broad demand boosts BSkyB Telegraph (27/1/11)
News Corp bud for Sky should go to Competition Commission, recommends Ofcom Telegraph (27/1/11)
Call off the hunt Financial Times (20/1/11)
Numis raises BSkyB on expected News Corp deal delay Reuters (21/1/11)
Questions
- Explain what type of merger it would be between News Corp and BSkyB.
- What are the arguments (a) for the merger and (b) against the merger? Consider the impact on the public, the competitors, the workers etc.
- What is the role of Ofcom and the Competition Commission? How do their responsibilities differ?
- As demand for Sky’s products increases, what could we expect to see in terms of price? Now explain why your answer may not happen!
- Why have BSkyB’s share prices been affected? Is it the demand of supply of shares that has changed? Illustrate your answer on a diagram.
If you want to buy a newly released DVD, a cheaper option than buying off the high-street tends to be to buy online, in particular through Amazon, the world’s largest online retailer. However, Amazon has been facing increasing competition from another US giant, Netflix that has over 16 million subscribers and is looking at entering the British market. Arguably, in a response to this threat, Amazon has agreed to purchase Lovefilm, the online movie rental service that has grown rapidly over the past few years, with over 1.4 million members around the UK.
As of 2008, Amazon already had a 42% stake in the business, but as Lovefilm has been running into difficulties, their senior management team has been looking at the possibility of selling the remaining 58% share. Enter Amazon in a bid to cement and defend their place in the British market to companies such as Netflix. Below are a few articles concerning this takeover – more will be added, as further details emerge.
Amazon acquires Lovefilm for £200m Financial Times, Tim Bradshaw (20/1/11)
Can Lovefilm survive the streaming revolution? Telegraph, James Hurley (27/1/11)
Amazon takes full control of Lovefilm Guardian, Josh Halliday(20/1/11)
Amazon buys remaining stake in Lovefilm DVD service BBC News (20/1/11)
Amazon takes control of Lovefilm Broadband TV News, Julian Clover (20/1/11)
Amazon acquires Lovefilm, the Netflix of Europe Tech Crunch, Mike Butcher (20/1/11)
Questions
- What type of takeover is this and what are the main motives behind it?
- How are consumers likely to a) benefit and b) suffer from Amazon’s takeover bid for Lovefilm?
- Who are Amazon’s main competitors? (Think of all the products they sell.)
- Will the Competition authorities be interested in this takeover? Explain your answer.
- In which type of market structure would you place Amazon, Netflix and Lovefilm? Explain your answer.