We have all been taught that monopolies are bad and competition is always good for consumers. Or is it not? Ok there are certain scenarios where monopolies are justified such as when there is a high startup costs where with 2 producers, the high price charged will cause 0 demand.

But what about satellite or cable tv services? DirectTV is one such provider in the US. But in many countries, premium TV programming are at times controlled by only 1 major company. Is the consumer better off that way? Or will they benefit more if we have more Directv System in place?

Let me quote an example in both Malaysia and Singapore. Both countries have predominantly 1 major cable or satellite TV player, namely Astro in Malaysia and StarHub in Singapore. Malaysia is not very well known for liberal anti-competition laws and as of today, there is no real challenger to Astro in the cable TV market. There are small competitors like MiTV but they did not last long.

Singapore on the other hand liberalised their cable TV market and in came SingTel with mioTV to challenge StarHub. So there is competition through SingTel to break the monopoly cartel held by StarHub. The consumers will definitely gain right?

NOT!

You see what happened next is really interesting. There are certain channels and programmes that consumers really consider to be essential and is a “must-have”. Examples English Premier League (EPL) and Champions League soccer. Whichever cable TV company that holds the right to broadcast these programmes will win a significant market share.

StarHub used to be the sole broadcaster of both soccer programmes. SingTel came in and started a bidding war to broadcast the EPL and Champions League. At the end of the bidding war, StarHub have to fork out over S$250million (more than 4 times the previous price paid just to outbid SingTel and ESPN StarSports) to host the EPL while at the same time losing the rights to broadcast the Champions League.

For the consumers, this only means 2 things.

2) Now I have to subscribe to both StarHub and SingTel if I want to watch EPL and Champions League soccer. More $$$ to be paid.

What the hell?

Did the government go wrong when they say the consumers will benefit with increased competition? Well the government can only say they erred in this situation because this is a unique situation where it is an Exclusive broadcast right. Well the only real winner was the EPL and Champions League broadcaster and eventually the football clubs.

Consumers do win of course - more variety of channels to watch albeit at a higher price. Any takers for Direct TV in the intense US market?

Sometimes I am happy Malaysia only has Astro I can watch all my soccer programmes on one cable TV operator. Hmmm, but it begs the question. Is Astro overcharging me? They have increased their price successfully over the year. I gotta do more research. Perhaps a good start would be their financial statement. If their average profit per user is constantly increasing over years perhaps it’s good to buy Astro stocks….

I wanna get a satellite TV in the US soon to entertain myself in uni. Perhaps I seriously consider Directv Service.

“If one is not a socialist by the time one is twenty then one does not have a heart. If one is still a socialist by the time one is thirty then one does not have a head.”

I love this quote I read in one of Khazanah Nasional’s Tan Sri Dato’ Azman Mokhtar’s speeches. He quoted it from someone but he did not say from who. Any help who said that? Kinda true right what this quote says? I like this quote.

I would like to comment on an article I read a few days back on TheStar about the direction Malaysia is heading with our economy. Click here for full article.

PUTRAJAYA: Malaysia must develop a new business model that’s more dependent on domestic consumption rather than relying on exports, said Minister in the Prime Minister’s Department Tan Sri Nor Mohamed Yakcop.

He said the model which the country had adopted since Independence more than 51 years ago had helped Malaysia emerge as a middle-income country.

“However, it will be difficult for us to become a developed country if we continue to use the same model.

“We need to develop a new model that is based on supply chain, reduced dependence on the export market and high local consumption,” he said, after handing over his duties to new Second Finance Minister Datuk Ahmad Husni Hanadzlah at the ministry here yesterday.

I am normally very supportive of the economic direction we are taking but this to me is really not the way to go for Malaysia to be a developed country. Our economic model that has brought us this far since independence no longer works? I beg to differ. For me the way for Malaysia to progress is to have an high value-added export-oriented economy - the model that we have been improving upon since independence. First we started exporting primary products like rubber and palm oil (we still are exporting these) but we soon learn to diversify and move up the value chain into low value-added manufacturing. What Malaysia needs to do next is to proceed into high-value added manufacturing and into the services sector like banking. We have a niche in Islamic banking and halal product manufacturing. Also the internet/tech sector is largely untapped here although it holds tremendous potential. This is where our comparative advantage lie. We should tap on it and export our expertise to the world to gain valuable foreign exchange.

Malaysia is really a trading nation. Our population of about 25 million is not big enough for us to be self-sufficient. Even if we have about 230 million people like Indonesia, an export-oriented economy is still the way to go. Japan, Taiwan, Korea and Singapore have all perfected this export-oriented economy. Even China is progressing fast by tapping onto this economic model supported by globalisation.

No doubt an economy with a high local consumption will make it more resilient to global economic downturn such as that of India’s, but the reality is growth will largely be surpressed if a small economy like us is not reliant on the global market. By relying on this export-oriented economic model, we have a larger potential upside for growth when the economy picks up in a few years time. This is where we need to position ourselves to fully take advantage of the upswings of the economic cycle - not isolate ourselves and be less export reliant and concentrate on local consumption.

Is it ethical for a company to put up sponsored links on Google on search terms for their rivals? How do you judge business marketing ethics?

I was doing a random search for Reebok and Adidas and what I saw on the sponsored links on Google horrified me.

What do you have to say? Should Nike continue their practise?
Or better still, what has Adidas or Reebok has to say about their rivals placing sponsored links on Google on their search term!

Oh I’d just noticed something really interesting too. Adidas search listing is about 3 times more than Reebok’s. Where has Reebok gone wrong in their marketing?

I applaud Datuk Idris Jala’s cost cutting measures at MAS. I applaud his efforts to innovate and increase the company’s revenues. I applaud his efforts in turning around the company. And I welcome changes to the way things are done at MAS.

BUT I have huge reservations to the latest initiative launched two days ago on the new airline fare structure. I understand the need for MAS to stay competitive. I understand that the 4 new airfare structures introduced by MAS is a covert method of more perfectly price discriminating passengers to increase total revenue. Theoretically, by charging 4 different prices for the same air route, MAS will be able to more perfectly exploit the different elasticity of demands for different passenger groups and hence increase revenue.

BUT this is what I have to say. The new airfare structure is simply TOO COMPLICATED AND COMPLEX for the average customer to understand. And this might work against MAS.

Four different price structures is a little too much for the average consumer to grapple with. There are just simply too many subtle differences in terms and conditions.

A few years back Celcom also experimented with this system for its prepaid customers. It launched 3 different plans for prepaid customers – Celcom Xcel, Xceed and Xplore. Theoretically it seems perfect. It offers value to different segments of consumers and tends to increase Celcom’s revenue. But I’m guessing the intended result did not follow the standard Econs/Biz manual. I do not have the data to support my point here, but I’m guessing that the program was not as successful as the management had planned. Celcom eventually merged its 3 prepaid plans into what is now known as Celcom Xpax.

So MAS, I would like to say the following to the management. Consider the SUBTLE INTRICACIES of offering so many options to customers. Maybe the more savvy ones will spend more time researching about your different plans. But will time-constrained consumers be willing to spend time understanding your 4 new structures? Or will they just give up and fly SIA or fly budget AirAsia?

Look, I’m not saying all is lost. There is pretty much nothing MAS can do since it has already launched the airfare to much fanfare 2 days ago. What MAS must do now is to engage in an aggressive marketing strategy to SIMPLIFY the structures.

I was reading newspaper reports on the 4 structures and they are very vague. Failure to do a good marketing strategy will simply result in disastrous losses.

I am seriously wondering why MAS is taking a budget approach towards airfares when it already has FireFly to service to budget segment. Look where SIA is going? It’s taking the luxury approach and is posting remarkable profits year after year. It stopped flying economy class to New York and now only flies business class there.

MAS, your cabin crew is one of the best in the world. Make full use of it. KNOW YOUR MARKET. Don’t be sucked into a futile competition with AirAsia. Both of you are competing in different market segments. And most importantly, don’t do a Qantas.

Last week was insane. I stayed back everyday till late evening in school. I had programmes in school and events in hostel at night. And even my saturday was not spared. Let’s see this week. Less hectic but still quite busy. Got to stay back for 4 out of 5 days. Geez. Still quite bad. And I’m now coming into a patch where there are lots and lots of mock tests, assessments to gauge our preparation for our prelims exam. GAAAH.

I’m not prepared for any. Got it. NOT PREPARED AT ALL. I dun even have time to study, how can i ever go and take a test? Nutcase. I guess it’s not the same for the others since they have had the last 5 weeks to study.

Nevermind. Still got time. Just gotta work hard. Pumping up on those coffee. For the first time I’m gonna start relying on coffee and making a slight tweak to the study style. Hopefully this works. (correction: this better work, else i’m screwed)

Anyway, yesterday I was at NUS the whole day for the National Economics and Finance Management Quiz 2008. Was part of the 21 from our college that was selected for the competition. Had some preparations from school. But it’s complicated. Thought we did not stand a chance to win nor do we stand a chance to win any special certificate.

We were surprised when we were awarded the certificate of merit. It means we were the top 25 ranking teams out of the 100+ teams who participated. I had to double check my team name on my name tag when the team name was flashed on the screen. haha. really din expect to win consolation prize since we made some rather silly mistakes and had many questions on cpf and insurance answered wrongly.

Oh btw, zhi wei’s team also won certificate of merit. haha, both the guys from 23/07 in diff teams won something. we were the only 2 teams fr AJC that won something.

It’s a whole day event from 10am till 5pm. Being good economics students, we were constantly arguing whether the opportunity cost of taking part in the competition will be worthwhile. Some professor said our opportunity cost was the time wasted in not being able to watch the new Batman movie. But seriously, that’s not our opportunity cost? Our opportunity cost now when time is really in scarce supply is that of not being able to revise and complete our homework. Luckily we won something, at least it reduces the opportunity cost. But it might still be costly……lol….

what am i doing now? time is limited. i should get back to my work….haha

I’m not going to sit here condemning the Government’s decision to increase the retail price of oil in Malaysia. I’m actually half happy and half sad that the Government is doing this.

Half-Happy

The decision to increase the retail price of petroleum and diesel is a brave one. It’s going to be gravely unpopular with the public considering that rising cost of living was a major factor that led to the huge defeat by the ruling coalition.

From a macroeconomic point of view, I’m glad the decision was taken because Malaysia can never continue subsidising fuel. Malaysia is a net oil exporter. It will be a net oil importer in the next few years and its oil reserves is projected to diminish in the next 10 years. World oil prices have increased about 400 percent to roughly US$130 per barrel. The increasing world oil prices have seen the oil subsidies provided by the Malaysian government ballooned from RM19billion to a projected RM55billion this year.

Our whole economy is crippled by the Government’s inability to allocate valuable resources to more important investments for our country’s future growth. And the subsidies provided by the Government have only exemplified the subsidy mentality. Are we experiencing a mini resource curse where countries with natural resources experience slower economic growth?

Half-Sad

I’m actually pessimistic with this decision because the reduction of fuel subsidies will lead to inflation. And the problem with inflation in an economy like Malaysia is more serious as compared to Singapore. In Singapore, wages are continuing to rise due to the labour shortage and as long as the increases in wages are higher than the inflation level, there would not be much of a problem. But the problem with Malaysia is wages are not rising as fast as it ought to be.

This leads to a more serious fundamental problem plaguing our economy – our comparative advantage. We are still stuck in our 1980-90s mentality of attracting low value-added manufacturing FDI. We forget that we do not possess the comparative advantage in labour intensive industries anymore as countries like China and Vietnam open their doors to foreign investors.

This debate can go on for pages on where Malaysia has gone wrong, but I shall not spend time elaborating. There are many factors – corruption, transparency issues, education system, government efficiency etc

The bigger question that we should ask is what the government will do with the savings from the reduction in oil subsidies. In fact many will argue that the government is actually richer than ever before considering that Petronas and other commodities companies are posting record profits thereby contributing significantly more to the Government’s coffers through corporate taxes.

I’m sad at this because the bare fact is we do not know. The money might be used to fund important infrastructure projects or to improve our public transport, both of which will boost our country’s competitiveness and attractiveness as an investment location. Or the money can be wasted on some corruption-laden non-productive projects.

Where are we heading after this?

I was reading the Today newspaper dated 27th November and there I read a published letter by a person on one method of ending rampant [tag]piracy[/tag] of [tag]music[/tag], movies and computer softwares.

He was saying that no matter how tough the enforcement of the piracy law is, piracy will not go away easily. Well, in [tag]Economics[/tag] term there is such a thing called demand for such pirated goods due to the cheap prices offered relative to the original products. And when there is a demand for such products, there will be people willing to take the risks (in this case fines and jail terms) to supply these products to earn profits.

The average guy down the street will feel that they are being ripped off by the huge companies for charging a very high price for their products and will resort to pirated goods to offset the high costs.

As such, the author suggested using the [tag]Big Mac[/tag] type of [tag]pricing[/tag] for these products to make them more affordable for the average person in different countries. When original products are more affordable for a significant majority of the population, people will be more inclined to buy original products thus lowering the piracy rate. Of course this have to be coupled with education on respecting intellectual property, but the current tactic of using only education and law enforcement is not very effective because it doesn’t deal with the affordability aspect of the problem.

The author goes on to continue giving example of how the Big Mac is priced differently in different countries although it is supposed to be the same size and have the same ingredients. For example the Big Mac costs S$3.60 in Singapore but across the Causeway in Malaysia it costs only S$2.40. In the US, it is S$4.70 while in Switzerland, it is S$8.20.

The Economist magazine also has a Big Mac index to measure the different prices of Big Mac around the world. It is based on the economic theory of [tag]Purchasing Power Parity[/tag] (PPP) to see how a certain amount of money can buy different amounts of goods in different countries. But their main function of the Economist’s index is to measure how a certain currency is undervalued or overvalued. It takes the US dollar as a benchmark to compare the Big Mac prices and it found that certain Asian currencies are undervalued by as much as 40-50%.

Source: http://www.economist.com/markets/indicators/displaystory.cfm?story_id=8649005
Continuing on, what the author suggest is pretty much feasible. If McDonalds can do it worldwide and charge a different rate for the same product (Big Mac), why can’t the music, video and computer software companies implement the same thing?

They can charge different prices for the same product in different countries thereby making their products affordable for the masses. Then, they can all stop bitching about rampant piracy cutting their margins.

I believe this is a very reasonable idea to be adopted. Price Discrimination as they may call in Economics where producers charge different prices for the same product. Companies practise it all the time. But why can’t they use it for this purpose. Book producers do it by charging a cheaper price for text books for sale in Asian markets but a higher price in European markets. At the back of the book you see a small note: For sale in Asian markets only.

Well, Economics text books say: For Price Discrimination to occur, the supplier must have monopoly power, there must be a segmentation of the market, resale of the product must not be possible and the demand elasticity of the product must be different.

In this sense, the music, video and computer software industry satisfies all these 4 conditions.

In fact, by using this method, the producers will be able to increase revenue and profits. Although the producers will earn less for every product sold, but because the product is [tag]price elastic[/tag] in [tag]Asian[/tag] markets (Asians are very price conscious and will buy the cheaper alternative [also dependent on level of respect of intellectual property]), the overall decrease in prices will result in a more than proportionate increase in products sold. And as a result profits will increase. To make profits for the companies even bigger, they can further price discriminate internally within a country. They can charge consumers a lower rate. Companies and government that uses the products for commercial purposes meanwhile can be charged a higher rate.

I am very puzzled while such a simple idea cannot be implemented by these huge companies. Why can’t they work with the [tag]free market[/tag] and undertake policies accordingly? Instead they are focusing all their efforts in bitching to governments to enforce piracy laws etc.

[tag]Record companies[/tag] themselves are passionate about price discrimination. In fact they are pushing to practise [tag]price discrimination[/tag] in the online music trade world. As we all know, Apple’s iTunes Music Store charges US$0.99 for a single download of song. However, record companies are pushing for flexible pricing. It wants iTunes Music Store to charge newer songs at a higher price and catalogue materials for less.

Source: http://www.engadget.com/2006/04/21/apples-itunes-pricing-to-stay-at-99-cents/

Why want to price discriminate in the US but not in Asian markets? Even for the 99cents a download, it is pretty much expensive for the average Asian consumers.

Take for example the average music CD price. In Malaysia, the average music CD costs RM40. In Singapore, it is around S$20 while in the US it is around US$10.

Assuming the average pay of the average worker is RM2000, S$2000 and US$2000 in the 3 countries, one will easily understand why piracy is more rampant in Malaysia and almost non-existent in the US. This is because to buy an average music CD, it costs 2% of the average Malaysian pay, 1% of the average Singaporean pay and 0.05% of the average American pay. You see, the proportion of income spent on music CD will be much higher in less developed countries. This is related to the Economist’s PPP because currencies of less-developed countries tend to be undervalued to the US dollar.

Big Mac is priced differently in different countries to make it more affordable for the average man. Yet, we have not heard of McDonalds complaining of low sales because it is not affordable.

Yes, it does not suffer from piracy situation, but it does have many local competitors who offer similar burgers at a cheaper rate.

Yes, I would agree that pirates sometimes can duplicate a product to such great quality that sometimes one cannot disseminate the differences of an original to a pirated product. But things can be further improved by educating the public on intellectual property. However, people will not resort to original products if the price difference is too massive.

One question for all of you to ponder: Why do book publishers rarely complain about piracy, in this case students photocopying their books? Because first the practise price discrimination according to regions and more importantly they offer value-added products. They offer more information on their websites, CDs with more programs, softwares, online tutoring, online mentoring, online marking and the list goes on.

Yes, I would agree that the cost of producing the goods will be similar although the selling price will be lower in most Asian countries. However one also has to consider that the cost of promoting a product will also be lower in Asian countries and the possible benefit of eradicating piracy in the long run.

In conclusion, by using the Big Mac style of pricing, products will be significantly affordable for the average man in different countries. With continuous education and campaigns on the need to support intellectual property and law enforcement by the police, I’m pretty sure more and more people will soon resort to buying original products and piracy rates will go down.