Global Economics and Management

Online Price Discrimination

The WSJ investigates. My reaction to this article was "what naive reporters - they should have known how ubiquitous price discrimination is, not just online but offline as well". Their view of the incidence of price discrimination on consumers is simplistic as well. The first question one must ask is what alternative price discrimination must be compared to. The obvious answer is "simple pricing". Then, there are some consumers who gain and some who lose from price discrimination. Those whose prices go up are left with a smaller surplus. Those who previously would not have  purchased the product but now do are engaging in a welfare-enhancing transaction and thus benefit from price discrimination - they would not have purchased the product under simple pricing (at worst, they are left with zero surplus, and are made no worse off).

There is no doubt that price discrimination benefits a company's bottom line. But as we all know, corporations are people too. It is easy to see that aggregate welfare (total value created) rises under price discrimination compared to simple pricing, a fact that the article fails to acknowledge.

The Challenge of Coal in India

The Washington Post opines:

http://www.washingtonpost.com/world/india-confronts-mountain-of-coal-problems/2012/12/22/dd631a9e-327c-11e2-bfd5-e202b6d7b501_story.html

The story illustrates the governance problems that, as I witnessed on the recent India study trip that I led, are THE major hindrance to faster growth in India.

Online versus Brick and Mortar

Via your classmate Dwight Asuncion, here is a great New York Times article about online retailers opening brick and mortar stores or showrooms to complement their online stores:

The article hits on many themes we discussed in Management 405. The big issue is whether, for physical goods, a strictly online retailing model can be sufficient. The trade-off is that the cost savings that come from the online model are undermined when retailers open physical retail locations or showrooms.

Subsidies to Poverty in France

Forbes Magazine opines.

As I am fond of saying, if you subsidize something, you get more of it.

That holds for poverty and unemployment too.

The Mad Men Economic Miracle

Via your classmate Rohan Castelino, here is a great article from the New York Times Magazine on the cable industry and its content providers that constitutes a superb capstone to our Managerial Economics course. The article brings together a lot of economics concept - such as barriers to entry, oligopoly, incentives to innovate, monopoly pricing, etc. - that were central to the course. It applies them to an industry that has found a way to generate large rates of return, but whose business model is increasingly threatened by competition from new methods of content delivery. A must read.

Golden Balls

As promised, here are links to clips from two Golden Balls shows. I start with the one shown in class:

 

Second, here is an example of an interesting strategy. I briefly mentioned it in class, but did not have time to show the clip:

 

Courtesy of Michael Leyva, here is an interesting academic analysis of data on the split or steal decision in a large sample of Golden Balls shows. Cooperation is surprisingly frequent given the high stakes. 

CEO Superstars

The academic paper on CEO superstars that I mentioned yesterday can be found here. One of the coauthors [Tate] was an assistant professor of finance here at Anderson until earlier this year (he's now at UNC Chapel Hill). I was sorry to see Geoff leave.

I Won't Pander to Pandora

A business model where costs rise with the number of users, but revenues do not, is a stupid business model. Discuss.

India News

On Friday I will be teaching the third class of my India course, and the last class ahead of our departure on the India Study Trip from December 16-22. In anticipation of the class, here are some India links for my students in the India Study Trip course, and others from Management 405 who might be interested:

1) Growth in India is a tepid 5.3%. Of course, if the US had 5.3% growth it would feel like a real party. And if Europe had the US rate of GDP growth of 2.8% (the last quarter's figure), it would feel like a party there. Everything is relative, but 5.3% growth is a significant slowdown from the post-reform norm. Auto sales, in particular, were mixed. What is striking, in reading the linked article, is the diversity of makes and models of cars now available in India. When I was growing up there, you had a "choice" between two models: the Premier Padmini, based on a 1957 Fiat, and the Ambassador, based on an old Morris.

2) Growth is important. It is the single most important factor in poverty alleviation. It is fair to say that you can sometimes have growth without poverty alleviation, but you cannot have poverty alleviation without growth. In this context, your classmate Grace Chang sends me this fascinating Business Week account of the evolution of hunger and malnutrition in India. It is a human, concrete assessment of the challenges of malnutrition in modern India. While widespread famine has virtually disappeared from India, malnutrition is widespread, and the article highlights a recent puzzle: Indians seem to be consuming fewer calories per capita now than in the 1980s. The causes of this are not well-understood. I highly recommend this article. Articles like this serve to remind us of what economics is really about: the improvement of the human condition.

3) On other news, both national legislatures recently approved the opening up of the retail sector to at most 51% foreign investment. This paves the way for large scale supermarkets to set up shop (pun intended) in India. The article describes how the passage of this measure could pave the way for more reforms of other sectors.

4) Moving away from strictly economic topics, the WSJ also started a series of in depth articles on the recurring disputes at Ayodhya, site of Hindu-Muslim tensions and conflicts. This series is an opportunity to learn about the tremendous ethnic and religious diversity of India, with all its costs and benefits.

I will post more India links here this week, as they become available.