Mod 5 exam review

What is "Just Price"?

Just price is a price agreed upon by the buyer and seller (in the absence of fraud). Different ideas of just price in society- regulations on prices etc... Vance believes that govt shouldn't intervene (lazziesfiare) and should just be agreed upon.

Where did the concept of Just Price come from?

Just price is associated with the medieval Roman Catholic philosopher Thomas Aquinas

Industrial mutation

incessantly revolutionizes the economic structure from within, incessantly destroying the old one and creating a new one -non stop revolutionizes from within

Paradox of progress

winners and losers from capitalism, but gains outweigh the losses

Is capitalism pro big business or pro consumer?

""Pure capitalism" is often thought of as anti-"big business" because competition destroys inefficiency and entire industries through constant innovation by new entrants or by those seeking to survive the intense competition."

What is the author (Vance L.M)'s conclusion and point of view?

"Laissez-faire is natural, moral, and biblical"

How does Vance LM support his conclusion?

-"Government interference in the market cannot make the market more competitive; it can only distort the market. Attempts to regulate markets by government always have unintended consequences." -"The separation of market and states is just as important as separation of church and state".

Any problems with surge pricing?

-Constantly shifting zones and rates -low ratings with surge pricing -drivers prefer steady rate vs. chasing the surge

saving grace comes from the recognizing the good that comes from the turmoil

-Economy grows more productive and richer -new and better products -better jobs -higher standards of living People use the term monopoly as a term of their hatred of business. They will use the word to describe big business and how they hate it (many of the times because they lose from it - paradox of progress) but in reality this big business is the main contributer the their higher living standards etc...

What are examples of government intervention in pricing?

-Minimum wage -Sugar price supports -Price gouging -dumping -usury

Collusion

-Occurs when firms conspire to set the quantity they produce or the prices they charge -Collusion is largely illegal in US, canda and most of EU due to competition/antitrust law

Other notes on the myth of just price-

-People exchange in the market economy to their mutual advantage -immoral should NOT be illegal

Disruptive innovation

-What job needs to get done? find a new cheap way. Ex- Crest whitening strips instead of going to the dentist for expensive whitening -New categories of consumers -generally at the bottom of the market -small companies/entrepreneurs with a better and cheaper option -A form of creative destruction- more than just the evolution of something it's coming up with something brand new.

What might be the impact of algorithms or "virtual" competition on a market economy and the competition?

-Your not gonna get competitive market in internet competition because you get what you need from the one... (oligopoly) new firms can enter the market due to dominant firms -Without regulation, with virtual competition perfect discrimination will become the new norm and we will begin to see "monopoly power on a scale unlike any we have ever known"

sustaining innovation

-improving existing products -usually at higher tier of the market -Ex. iPhone

Free markets ceaseless churning leads to

-lost jobs -ruined companies -vanishing industries

Predatory pricing

A pricing strategy in which a product or service is set to a very low price with intention to -attract new customers -drive out competition -create barriers of entry for potential new competitors

Long run predatory pricing

Bad because of monopoly pricing

Baptists and Bootlegers

Bot Baptists and bootlegers supported the prohibition because they sold alcohol during the prohibition. Since selling was illegal, they had no competition. -Facebook and amazon support regulation to eliminate competition (baptist argument for bootlegger interests) bar others from entering. -Are big companies doing this because its something good to do or are they doing it because it benefits them-etc... barriers into the market.

How does creative destruction relate to capitalism?

Capitalism is an evolutionary process which is by nature a form/method of economic change and can never be stationary. It is the process in which creative destruction takes place.

What is creative destruction?

Capitalism is the process of ongoing evolution and as it goes it wipes out the old way of doing things and implicates new ways. - Industrial mutation

How can drivers artificially create surge pricing? and why would they do so?

Drivers create artificial surge pricing by grouping up and all turning off their apps at once 5 minutes before a plane lands. Then two people standing at the pickup area of the terminals wait for surge pricing, and when prices rise they tell the drivers to turn the app on. This allows them to make more money than they otherwise would. Drivers do this because they are not being paid much. Many drivers have had to drop health insurance, or are even forced into homelessness.

How does this article (Competition, not break-up...) suggest that more competition can be introduced to the "big tech market"?

First, don't allow large firms to buy smaller ones. The introduce "data mobility", and to keep large companies, such as amazon, from advertising their own products over third parties.

Short run predatory pricing

Good because of cheaper prices

How did Thomas Aquinas define Just Price?

He defined it as "price should represent the true value of goods" - to sell or buy for more/less than something is worse is in itself unjust and unlawful

how govt intervention afffects pricing

Minimum wage- increases labor costs resulting in raise of employment barriers causing unemployment Sugar price supports- tariffs placed for the sole purpose of propping up the domestic sugar industry. Artificialy high price for sugar. congress accepts "bribes from their sugar daddies in the sugar industry" Price Gouging- price-gouging laws - it is unlawful to sell G&S at a higher price during a state of emergency Dumping- punish foreign producers for daring to offer consumers low prices- designed to protect domestic producers from foreign competition (not practicing what they preach (free trade)) Usury- next slide

Bundiling

Requiring that products be bought together in a bundle or package -EX: toyota doesn't sell car parts individually, it only sells you the car. -EX: Microsoft bundles word, excel, outlook, access, and powerpoint into a bundle (microsoft office)

What is meant by surge pricing?

Surge pricing is Ubers algorithm to equilibrate supply and demand. When there are more riders than drivers such that the availability of drivers is limited and wait time is high the surge multiplier increases incentive for more drivers to go to that area. The price is shown to the rider in the app and the rider must acknowledge the higher price before the request is sent. -The price signals close the gap between supply and demand. Allocate rides to those who value them most- allocative efficiency.

Arbitrage

Taking advantage of price differences for the same food in different markets by buying low in one market and selling high in another market

Why does the author suggest a code of tech ethics?

The author suggests a code of ethics to make sure no companies allow individuals data to be used in harmful ways, or serve them false or misleading content/ads. It also protects confidentiality. Having a set ethics code (also in law) would give companies legal standing to fight for interests in the face of government demands for individuals private data as well as standing to fight censorship of content that individuals have the right to produce.

Explain how the baseball analogy (in The push to break up big tech) relates to owners of tech platforms. Is this a good analogy?

The baseball analogy is saying that you cant be the owner of a technology platform and make the things you find on the platform. This is a great analogy as long as you understand sports, but i don't know what an umpire is.

What is meant by "information fiduciary"?

The development of an industry wide code of ethics that tech companies can unite behind in implementing censorship and privacy policies. -Idea comes from how lawyers and doctors are required to meet obligations (sometimes called fiduciary" duties)

Who is benefited by this type of pricing and how are they benefited?

The drivers and riders who value the ride the most are both benefited from this form of pricing. Drivers receive more money to drive during certain times. Riders who value the rides the most have little/constant wait time.

Is the focus changing?

The focus is very much changing as the government has began to shift to protect competition. At the end of the Obama presidency, democrats were proposing laws to block mergers that would hurt competition Today Elizabeth warner is trying to break up big tech companies with legislation.

Laissez-faire

The idea that government should interfere as little as possible in the nation's economy

Virtual competition

The promise and perils of the Algorithm-Driven Economy... platforms have replaced the invisible hand with a digitized one - a hand that is engineered, subject to corporate control and manipulation, and prone to charges of unlawfulness, on three fronts in particular" : 1. collusion 2. behavioral discrimination 3. asymmetric "frenemy" dynamics

What is the Paradox of progress? what are the implications of creative destruction?

The rewards of creative destruction come at a cost- some aspects of society might be worse off in the short term or possibly forever -A society cannot reap the rewards of creative destruction without some losing. But, attempts to stop this loss and to preserve industries will lead to stagnation and decline, circuiting the march of progress.

What has been the traditional focus when evaluating companies for anit-trust behavior?

The traditional Clayton Anti Trust Act bars one company from acquiring another when "the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly". The substantially in this definition is what allowed facebook to buy instagram in that instagram only ha 30 million users at the time, so it didn't lessen competition. Anti trust law also isn't about one company dominating the market is bad, its about one company dominating the market leading to bad outcomes (high prices) for consumers is bad. Since insta and facebook or free they didn't do anything bad in that the government stepped in.

Tying

To use one good a consumer must use a second good that is sold only by the same firm EX: company sells printers below cost and the ink far above cost, and the printers only work with the ink cartridges

Examples of Creative destruction

Transportation - Horses and muels -> cars and airplanes -Railroads -> long-haul trucks Land lines-> cell phones Written communication, postage-> face book, twitter

Is Uber profitable? If not, where is the funding coming from to support the company?

Uber has not been profitable because of their attempts to drive out competitors they have been loosing a significant amounts of money.

What business strategy has Uber been using to deal with their competitors?

Uber tried to drive out investors and monopolize by using the generous flow of money from investors used to subsidize losses and drive competitors out.

Is Uber's rule breaking "bold disruption? Why or why not?

Ubers rule breaking is NOT bold disruption. They were facing harassment allegations, local govt. regulations, protests, and all sorts of other porblems. Kalananick, the CEO, approached these problems with a better-to-ask-forgiveness approach in which he brushed the problems off as long as the company was growing. These multibillion dollar companies refuse to deal with these problems. But, if they fought for permission they probably wouldn't have gotten to where they are today.

How does usury relate to interest?

Usury is when someone charges more interest than what is legally allowed by the law. But this is very complicated as the maximum amount is not based off prime rate FFR, the discount or market rate. It is just what lawyers and economists decide it to be. It also varies from state to state. So what might be unlawful Florida is lawful in Alabama.

Should regulation be needed if there was a code of ethics?

With a code of ethics there should be no need for regulation because companies will not be doing anything wrong. Especially if cemented in law, the companies can take a stand against regulation because they already abide by a code of ethics which protects the user.

Perfect price discrimination

each customer is charged with his or her maximum willingness to pay -zero consumer surplus -only a monopolist can perfect price discriminate >bad if output falls or stays the same >Helps cover fixed costs >increases incentives to increase output

What other considerations should be evaluated when looking at anti-trust behavior?

platform utility, easy entry to a market, no anti-competition mergers... -does a company need to be broken apart in order to facilitate competition? -reasons to bust them up? look at slide 48

Price discrimination

selling the same product at different prices to different customers (need market power to do this) -If demand curves of markets are different, it is profitable to set different prices in different prices. Firm should set a higher price in markets with more inelastic demand. Arbitrage makes it difficult for a firm to set different prices in different markets -EX: movie theaters charge seniors less, airlines set different prices according to characteristics that are correlated with willingness to pay

The innovators dilemma

the difficult choice an established company faces when it has to choose between slightly improving existing market, OR capture new markets by new tech AND NEW business models

What is usury?

the price of interest charged on a loan for the lack of use of the money and the risk of loss -unreasonably high interest rates