Context Flashcards
Vertical intergration
Amazon no longer relies on third-party delivery services, either, instead implementing its own logistics service provider, this means amazon doesn’t have to rely on external providers.
Horizontal integration
Facebook and instagram, the acquisition of Instagram by Facebook (now Meta) in 2012 for a reported $1 billion. Facebook’s horizontal integration of Instagram was truly historic with a return of 100% in just over six years.
Conglomerate integration
eBay and PayPal, n 2002, eBay bought PayPal, providing it with a streamlined payment process for its goods.
Demerger
eBay and PayPal, two companies split in 2015 because of pressure from stockholders and the rapidly changing business environments in both commerce and payments, but they signed a five-year agreement that guaranteed reliable income to PayPal while it successfully expanded its platform to other competing retailers and financial firms.
Business objectives
Asda, claimed their objective is to pursue sales maximisation and increase market share, even at the expense of lower profits. The willingness of shareholders to accept low profit can vary with the industry. For example, with IT/internet firms like Amazon, shareholders have proved more willing to tolerate low dividends and seek market penetration with the potential for more profit in the future.
Diseconomies of scale
Apple, perhaps running into problems designing a desirable product that they need to produce 200 million times over the course of a year. The iPhone is so popular a product that Apple can’t include any technology or source any part if it can’t be made more than 200 million times a year. If the supplier of a cutting-edge part Apple wants can only provide the company with 50 million per year, it simply can’t be used in the iPhone.
Economies of scale
Apple, Since Apple sells millions of iPhones each quarter, Apple can commit to component orders at significant volumes, with favorable negotiating leverage that results in volume-based supplier discounts.
There are also many Apple products that share the same components (e.g. processing chips, display screens), enabling Apple to place even larger (and even better-priced) orders.
Dynamic efficiency
Porsche, make eletric sports car in £700m project, aimed to challenge teslas dominance of battery powered sports car market. accounts for 11% of Porsche’s total sales and makes a profit, which is a rare feat for an electric vehicle.
Collusion
Apple and google, were investigated for an agreement between the two companies where they agreed not to hire staff from the other company. This was an attempt to prevent wage spirals due to workers moving between the companies. The companies agreed to make a settlement rather than take it to court.
Contestablity
Aldi and lidli, majority of products are own label giving them monopsony power. 2010-2015 shared market share 4.5%.
Monopsony power labour market
Government, nurses in London paid less than average regional wage.
Policies to tackle labour immobility
HS2, project scaled back due to increasing costs. Anticipated cost of. project over tripled.
State provision
Flood defences are provided by the government as rational firms will not provide them in the free market. 2020 budget government to double investment in flood and coastal defences.
Taxation
Sugar taxation, poor. diet costs economy £74bn a year. Following sugar tax there was an 8% reduction in obesity in girls between age 10-11.
Privatisiation
Royal Mail, t made a 57% increase in its share price over seven years after the privatisation despite a sudden drop in 2018 after its profit warning. The government raised £3.3bn from selling its stake in Royal Mail.
Minimum pricing
Alcohol minimum pricing in Scottland, 13% drop in alcohol related deaths and hundreds fewer hospitalisations.
India nominal GDP
$3.2tr
India population
1.4 billion
India diversification & global competitiveness
Successful for manufacturing and service industries eg. high profile businesses like Tata, Bollywood, IPL
India living standards
Catching up as achieved 10% GDP per head relative to USA at PPP in 2010
India median age
28 - productive
India distribution of GDP in 2015
50% services, 30% industry, 20% agriculture
India gini co-efficient
0.35
India % living >$1.90 a day
21%
India urbanisation
35%
India HDI ranking
131st
Cambodia nominal GDP
$27bn
Cambodia gini co-efficient
0.37
Cambodia urbanisation
24%
Cambodia % living > $1.90 a day
13%
Cambodia HDI ranking
144th
Cambodia population
17 million
Cambodia income status development/projection
Reached lower middle class in 2015 and aiming to reach upper middle class by 2030
Cambodia rates of HDI growth
8th fastest by extreme poverty reductions of 48% in 2007 to 14% in 2014, improved education/healthcare
Cambodia median age
26 - productive
Cambodia trade as a share of GDP
125%
Cambodia development improvements
investment in garment industry, construction boom, tourism revenue
Cambodia development suffering
environmental threats of plastic pollution, urban-rural divided in disposable incomes
Cambodia corruption ranked
161/180 in 2018
Vertical integration (backwards)
Volkswagen invests in mines to secure electric battery supply
Tax (pro)
Scandinavia has incredibly high taxes, however its spelt on public services which may be why income inequality is lower. And employment rate remains fairly high.
Interest rates
UK’s biggest bank HSBC> benefitted in profits from recent + in interest rates as they are a global large business
.>+ interest rate on loans are paid to savers> + incentive to save
. > Service fees
.> Brokerage % on services ie currency x-change & buying and selling shares.
automatic stabilisers
Furlough scheme > used to + stimulate spending in the economy to boost AD as it provides income support.
Regulating
OFGEM reviews way in which energy sector is being run
> and told them they must reinvest profits back into improving services for the next 5 years.
Market failure
BoE has said: “Global financial crisis cost everyone £20k per person in the uk”
Price Fixing (LIBOR scandal)
LIBOR = benchmark interest rate that is used to set the cost of borrowing for financial products i.e mortgages
scandal was manipulation of the LIBOR by some of the banks that participated in the rate-setting process.
some banks were artificially lowering or raising the LIBOR to benefit their own financial positions, such as by making their own borrowing costs appear lower than they actually were.
This manipulation artificially affected the cost of borrowing for millions of people and businesses around the world.
Price fixing (Pfizer & Flynn)
Pfizer and Flynn have been fined £70 million for abusing their dominant positions to overcharge the NHS for a life-saving epilepsy drug.
> e.g of anti-competitive behaviour being investigated by CMA
Monopsony position Exploitation
Tesco votes to charge suppliers for fulfilling online orders.
however the marginal cost of an online sale is zero so this is ridiculous!
Offshoring (Toblerone)
Involves relocating these functions or services to a different country, often to take advantage of lower labor costs, tax incentives, or regulatory environments.
Toblerone removes mountain peak from packaging to avoid violating a Swiss law that protects national symbols, as the brand’s owner shifts some production out of Switzerland.
PED (Tesla)
Ped is inelastic so
Tesla has cut the prices of its most expensive models in the USA for a second time this year with the starting price of the Model S being reduced 5% to $89,990 to + revenue.
Specialisation, division of labour and exchange
Specialisation / division of labour in firms: car production, fast-food restaurants, construction companies Specialisation within a country: UK with finance in the SE, China with manufacturing near the coast etc
Externalities
Vaping: information failure, and consumption and production externalities
Cigarettes/alcohol: considered demerit goods (information failure), also consumption and production externalities
Gym memberships
Public goods
Technological change: easier to restrict previously non-excludable goods, such as pay-per-view events
Tragedy of the Commons: plastic in the oceans
Government intervention and government failure
Obesity crisis: sugar tax and the obesity crisis, and the hypothecation of revenue towards primary school sports activity; printing; nutrition information in traffic-light standardised formats possibly with equivalent exercise calorie information
Plastic and litter: possible “latte tax” on disposable coffee cups, possible printing of car reg plates onto takeaway food packaging
Commuter rail fares: annual limited increase for commuters but not other types of fares
“Dieselgate”: previous government support for diesel cars led to too many and rising pollution
Business growth
Organic growth: Horizontal merger: Fiat Chrysler and PSA, RipCurl and Kathmandu, JustEat and Takeaway.com, Barrick Gold and Acacia Mining, Deutsche Bank and Commerzbank (failed merger)
Vertical: Netflix and production companies, Google and FitBit (possibly conglomerate!), BP and Chargemaster
Conglomerate: Sports Direct and House of Fraser, Unilever and Graze
Demerger: PayPal and eBay, Whitbread and Costa Coffee, Severn Trent and Biffa, GoCompare and eSure
Costs of production
It can be useful to be a very familiar context e.g. pizza delivery company, coffee shop/chain
Economies and diseconomies of scale (internal and external)
The car manufacturing industry is good for both internal and external economies of scale, as is the airline industry
Perfect competition: f
foreign exchange, rice
Monopolistic competition:
restaurants, hairdressers, global car industry
Monopoly
Google, regional train networks e.g. GW Railways
Duopoly:
Airbus and Boeing, Android v iOS
Oligopoly:
coffee chains, airline alliances, fast food restaurants
Contestable markets:
phone repair shops, farmers market stalls
Natural monopoly
National Grid, Air Traffic Control
Tech change:s
Smartphones and apps leading to the gig economy (Deliveroo, Uber etc); electric vehicle
Government intervention
context
Investigation and advice: Amazon and Deliveroo potential merger, ViaGoGo and StubHub’s merger, the subscription process for Nintendo / Sony / Microsoft
Price caps: West Coast train line between the NW and Scotland, pre-pay meter installation fees
Fines following collusion: the concrete industry (e.g. FP McCann), Scania and other truck-making companies (European Commission), modelling agencies
Nationalisation and privatisation
State owned enterprises: NHS, Royal Mint, Royal Parks, BBC and Channel 4, Ordnance Survey, Urenco, RBS (partly)
Privatisation: Thomas Cook (in the 1970s) and its collapse in 2019; British Steel PLC in the 1980s and recent rescue by Indian company Tata, Behavioural Insights Team (very appropriate for Econ students to look at!)
Privatisation then renationalisation: Railtrack which became Network Rail
Part-privatisation: Eurostar Holdings, Manchester Airports Group
Negative PRODUCTION externalities
*UK farming major cause for ground and air pollution»» 1/4 of particle pollution in cities, organophosphates used in fertilisers discharge into rivers.
*chemical factories ie. 3M’s Antwerp factory- Toxins in the water and soil close to their factory caused serious long term health problems for local
Population> hard to measure human cost
Sewage cost the uk
Estimated cost of sewages to the Uk economy was 1.5 Bill in 2020
Common risks of Negative externalities ie excess chemixals from chicken farming and raw sewage by water company’s
*Health- risk of drinking polluted water> community sickness> + burden on NHS
*nature- loss of biodiversity due to algae and chemicals suffocating fish, plants and insects
*economics impacts- wider cost to tourist businesses> impact on house ££ in areas affected.
Negative CONSUMPTION externalities
Plastic waste- from consumption of ready meals/ wet wipes. ie. GREENPEACE survey states “plastic packaging disposal tops 100 billion pieces a year “
^ but this is arguably single use plastic because keeping food in plastic long use containers prevents food ease
Passive smoking- inhalation of second hand smoke associated with respiratory infections such as Pneumonia and bronchitis i.e bronchitis cost the NHS greatly including people that’ve never smoked before
Positive Production Externalities
*Infrastructure Spending- train> reduced delays lowers costs for logistics/ transportation for firms
*Open source software- ie development of Coding soft ware CHATGPT
*Research and Development projects ie. Materials science and vaccine platforms
Positive consumption externalities
*going to Libraries and Museums and other freely available public spaces
*take up of Vaccines and wearing face masks during pandemic
fiscal drag
Is generating £25bn of extra tax revenue for the uk as Gov has frozen personal income tax free allowance till 2028 ( this is vu they fall into a higher tax bracket so to rising wages but gov don’t realise they should adjust to inflation) so this is unfair
Flat rate taxes
Romania - 16%
Hungary - 16%
Estonia- 20%
Mongolia - 10%
Supply side shocks
*covid 19> disruption to widespread supply chains> shortages in goods and services
*was in Ukraine> energy prices > disrupted global food supplies
*Uk leaving Eu single market> uncertainty/ delays in trade> + cost for biz’s especially for small ones
Subsidies ( Nissan)
Government subsidy to Nissaned to Nissan opening a production plant in Sunderland> 1000s of jobs in the region.
Maximum prices (Manhattan/Venezuela )
Manhattan: property rent controls
Venezuela: milk, toilet paper, medicine, petrol
^ creation of black markets as these goods no longer sold in supermarkets as firms can’t make a profit > and thus maximum prices can also lead to blackmarkets, discriminatory policies in allocating goods.
Minimum price (Scotland)
On alcohol> targets cheapest alcoholic drinks> aims to cut down binge drinking < however since it’s aimed at an inferior, addictive good > may + income inequality for those in poverty & addicted.
Minimum price (Nashville)
Imposed on limousines> stifled competition> most price competitive firms are forced out of business
Sulphur trading scheme U.S
Reduced sulphur dioxide by 40%
UE emissions trading scheme (2005)
ETS represents a 21% reduction in greenhouse gases
> since then other greenhouse gases ie nitrous oxide have been included > this scheme has even extended to airline industry.
*permit scheme has now been introduced in China
So proof it works!
Information provision- cigar packages & campaigns
*information on health effects of cigars on labels
*campaigns on speeding, obesity
Ie traffic light system, where foods are rated green, red, orange on calories sugar etc
^^ HOWEVER despite information campaigns > consumers still undertake harmful and dangerous activities
Consumer protections laws
And industry standards helps to overcome problems relating to second hand products
Provision of public good (UK)
Uk gov provides Education, healthcare, education
^ schools having their budget cut
^ NHS suffering from underfunding
Where more money is spent on railways than road smh even tho 92% of all journeys are made by road
SUGGESTING misallocation of resources
Uk Regulation examples
*EU fishing quotas
*smoking bans
*minimum age laws ie condoms, smoking
*maximum vehicle CO2 emissions
Youth unemployment rate
11%
Migrant workers as a percentage of the labour force
18%
Workers paid at or below the Mai tio Al minimum wage
https://quizlet.com/gb/786989379/economics-context-flash-cards/#:~:text=Al%20minimum%20wage-,5%25,-%25%20of%20ppl%20in
% of ppl in uk earning £30k
28%
% of people in work in the uk members of trade union
23%
Price cap ENERGY PRICES
Ofgem introduced an energy price cap based on the wholesale costs of gas and energy that suppliers incur when providing services such as the climate change levy. in 2019
HOWEVER due to surge in wholesale energy £ in the last 2 years due to comps suchas ‘bulb energy leaving the market due to loss in rev, , Gov has had to suspend the energy cap and introduced their own gov set energy £ guarantee. but should prob n=invest subsidis to offshore wind> sustainable.
Working poverty %
14% of workers suffer from in work poverty in 2019
- Joseph Rowntree foundation
Gov has raised corporation tax by
From 19% to 25%
Largest Employers in the world
Walmart 2.3mn
China National Petroleum 1.5mn
China Post Group 950,000
Amazon 566,000
Largest companies in the world by market value (May 1st 2019)
Apple $992bn
Microsoft $978bn
Amazon $941bn
Alphabet $812bn
Public sector businesses
RBS
NetworkRail
BBC
NHS, police, armed forces etc.
30% of public service staff employed by the NHS
Social enterprises
Eden Project (Cornwall)
Divine chocolate (Fair trade)
Cooperatives
John Lewis Partnership
Arla
Organic business growth
Under Armour, LEGO
Conglomerate businesses
3M
Siemens
General Electric
Unicorns - Start-Ups valued >$1bn
Uber
Airbnb
JUUL Labs
Joint ventures
Google & NASA (Google Earth)
Renault, Nissan & Mitsubishi (long-term “Alliance”; world’s leading plug-in electric vehicle manufacturing group)
Recent mega mergers/acquisitions
March 2019: Disney acquired 20th Century Fox (>$70bn)
Amazon acquired Whole Foods ($13.7bn)
Demergers
2016: Sports Direct sold Dunlop for $137mn
eBay/Paypal demerger
Challenger brands in contestable markets
Metro Bank/Monza
Lidl
Norwegian Airlines
Train operating companies
SouthEast
First Western
Virgin-Stagecoach (joint venture)
Monopolistic competition
Taxis since Uber; Clothing; Restaurants; Hairdressers; Hotels; Music streaming; Coffee shops; Bars; Key cutting; Shoe repairs
Oligopoly
Phone service providers (Vodafone, BT, EE)
Cinemas (Cineworld, Odeon, Vue all 20%+)
Duopoly
Coca-Cola and Pepsi
Airbus and Boeing
IPOs
Softbank ($21.4bn 2018)
Alibaba ($21.8bn 2014)
Monopsony employers
Uber
Deliveroo
High Administrative costs
The Concorde project was put down due to its heavy oil consumption and the extensive funds to improve safety standards while maintaining high-class onboard service. This is the case of government failure that stems from administrative costs and unpredictable events.
Higher Interest Rates
Japan had recently increased its interest rates after 17 years of
give an example of a successful trade union strike ?
The United Voice of the world trade union(UVW) is made up of migrant workers. The 2019 strike at St Mary’s hospital (London) led to a pay rise from £8.21 to £10.75 per hour. And they were employed on full time contracts.
what is happening to them membership of the UVW union
UVW is a fast growing trade union and since its creation in 2014 it has gained 3000 workers and is increasing membership by 200 per month.
what is an example of dynamic efficiency being achieved recently in the super market industry ?
Become dynamically efficient through covid 19 pandemic through online delivery systems, online groceries have taken a market share of 13%
why are price wars likely in the supermarket industry ?
Market is an oligopoly and firms set prices independently, which makes price wars likely.
give an example of the CMA intervening in the super market industry ?
CMA stopped a merger in 2019, between asda and sainsburys as they would have had a combined market share of 33%.
what is the average cost of developing a new drug ?what is the average cost of developing a new drug ?
Average cost of developing a new drug is $2.6 bn
how do the government encourage medical innovation
Medical patents give firms a 20 year legal monopoly, after this expires the market is opened up to competition which is normally in the form of an oligopoly and leads to more competitive prices and economies of scale.
what is the pay gap between Chinese workers and white British workers ?
Chinese with UK workers is + 30.9%
how much of the waste produced is recycled ?
84 billion tonnes of waste is produced each year by the global economy and only 9% is recycled. Poses costs on the environment.
describe the privatisation of the social care market ?
Privatisation started and now over 75% of british care homes are run for a profit. Leading to reductions in the quality of care as many care workers do not have the required qualifications.
38% of care were understaffed in 2018
38% of care were understaffed in 2018
describe the privatisation of the railway industry ?
Privatised in 1992 by John majors conservatives. Split up into 100 parts between 1995 and 1997 instead of being a natural monopoly.
describe the market failure on the tube
At peak times 23% of Londoners have to stand on the tube.
what is the loss of jobs due to automation ?
Economists state that technology creates more jobs than it destroys. An example is weaving was automated in the 18th century and jobs shifted into machinery operation.
Royal mail were sold for £3.3b
Royal mail were sold for £3.3b
which policy removed gender pay differentials ?
The 1970 Equal pay act made it illegal to pay men and women differently for the same work
what is the difference in men and women in part time work ?
41% of women part time workers compared to just 11% of men41% of women part time workers compared to just 11% of men
