I know I keep banging on about trust at the moment, but Facebook has shown us recently why people are losing faith in the idea of a free market.
When Facebook shares were floated, they were bought by small investors and fans of Facebook at $38 a share. It wasn't only small investors, George Soros bought some too. However last week saw the end of the 'local-in' period for the early investors, such as Goldman Sachs. As they rushed to cash in their gains, Facebook's share price fell to less than half of what we were originally told it was worth. Told by people like Goldman Sachs.
It doesn't matter if this was rigged or not. It's a high profile float where those who were on the inside make lots of money, and those who take their advice and listen to the hype, don't. At least in the short term. I personally have an issue with free marketeers who say that capitalism is the only answer. It may be, I don't know, but the market isn't free and we shouldn't pretend otherwise.
Monday 27 August 2012
Transparency and the Electricity Market
A belated comment about electricity markets, which I suddenly realised when I was reading the FT magazine recently. Tim Harford wrote a piece in the Undercover Economist called 'Don't Judge a Book By Its Cover Price'. The article was about amazon and computer pricing models, but he mentioned the problems of price transparency.
As JLF Bertrand pointed out in the nineteenth century, is two companies are offering an identical product and have transparent pricing, then rational customers will just go to the one that is the cheapest. This will lead to a race to the bottom in terms of pricing, until the price is at, or just above the cost of production. This surely highlights a reason why electricity pricing is far from transparent. The more complicated each company makes its products, the harder it is for customers to compare, and then move to the competition.
Bertrand's argument was too simple, however. While a cartel would be illegal, imagine if the competing companies understand this model and find a way to raise prices between themselves, or just never start the price competition in the first place. In fact, it would be entirely irrational to start undercutting your competitor, as you know where it ends - zero profit for everyone.
Which makes me wonder which way electricity prices are heading.
As JLF Bertrand pointed out in the nineteenth century, is two companies are offering an identical product and have transparent pricing, then rational customers will just go to the one that is the cheapest. This will lead to a race to the bottom in terms of pricing, until the price is at, or just above the cost of production. This surely highlights a reason why electricity pricing is far from transparent. The more complicated each company makes its products, the harder it is for customers to compare, and then move to the competition.
Bertrand's argument was too simple, however. While a cartel would be illegal, imagine if the competing companies understand this model and find a way to raise prices between themselves, or just never start the price competition in the first place. In fact, it would be entirely irrational to start undercutting your competitor, as you know where it ends - zero profit for everyone.
Which makes me wonder which way electricity prices are heading.
Tuesday 7 August 2012
The Price of Sport
Last night I watched a Women's Semi-final football match in Wembley. As someone who's really caught Olympic fever,even from the Midlands, I was excited just to be there.
The Columbian-American sitting next to me commented on the missed opportunity of the empty seats, and there were great swathes of them. He said how he and fellow American tourists had said how much they would love to buy these leftover tickets on the day and just how much they would be willing to pay for them. Afterall, as he said, we're here now, what's a few extra hundred pounds?
Despite these small set backs, I've been incredibly impressed so far. London isn't quite as busy as I expected. However the volunteers are amazingly helpful and friendly- the best sort of ambassadors you could hope for. And on top of all that, we are winning medals. So what about the legacy? (hard to say without coming over all twenty twelve).
In 2002, 25% of young people were doing at least 2 hours of sport a week. By 2010, that figure was 90%. Since then the School Sport Survey has been scrapped, Sports Partnerships have been scrapped and Michael Gove has approved the sell-off of 21 out of 22 schools playing fields (since 1998 schools have to get government permission). So the legacy picture looks not so bright. The changes that have happened over the last couple of years are exactly the reasons the Australian press is currently giving for its poor performance since its home games and 4th position in the medal table.
I've blogged about trust a great deal this year. Currently our elite athletes get only a few percent of their funding from commercial sponsorship. Most comes from the National Lottery and the rest from government. As the coalition continues its austerity drive, maybe the commercial players need to be stepping in and filling the gap, so we don't lose the momentum. Now is the time to capitalise on our successes. I can't see the government stepping up. Let's hope someone else does.
The Columbian-American sitting next to me commented on the missed opportunity of the empty seats, and there were great swathes of them. He said how he and fellow American tourists had said how much they would love to buy these leftover tickets on the day and just how much they would be willing to pay for them. Afterall, as he said, we're here now, what's a few extra hundred pounds?
Despite these small set backs, I've been incredibly impressed so far. London isn't quite as busy as I expected. However the volunteers are amazingly helpful and friendly- the best sort of ambassadors you could hope for. And on top of all that, we are winning medals. So what about the legacy? (hard to say without coming over all twenty twelve).
In 2002, 25% of young people were doing at least 2 hours of sport a week. By 2010, that figure was 90%. Since then the School Sport Survey has been scrapped, Sports Partnerships have been scrapped and Michael Gove has approved the sell-off of 21 out of 22 schools playing fields (since 1998 schools have to get government permission). So the legacy picture looks not so bright. The changes that have happened over the last couple of years are exactly the reasons the Australian press is currently giving for its poor performance since its home games and 4th position in the medal table.
I've blogged about trust a great deal this year. Currently our elite athletes get only a few percent of their funding from commercial sponsorship. Most comes from the National Lottery and the rest from government. As the coalition continues its austerity drive, maybe the commercial players need to be stepping in and filling the gap, so we don't lose the momentum. Now is the time to capitalise on our successes. I can't see the government stepping up. Let's hope someone else does.
Subscribe to:
Posts (Atom)