Google is Laying Fiber

The article in the WSJ reports that Google is laying high-speed fiber-optic cable in neighborhoods.

SUMMARY: Google's effort to provide faster Internet speeds at lower cost is changing how next-generation broadband is rolled out-while stirring debate about the "digital divide." "Frustrated by the hammerlock of U.S. broadband providers, Google Inc. has searched for ways around them to provide faster Internet speeds at lower cost, via everything from high-speed fiber to satellites.... Telecom and cable companies generally have been required to blanket entire cities, offering connections to every home. By contrast, Google is building high-speed services as it finds demand, laying new fiber neighborhood by neighborhood. Others including AT&T Inc. and CenturyLink Inc. are copying Google's approach, underscoring a deeper shift in U.S. telecommunications policy, from requiring universal service to letting the marketplace decide."

CLASSROOM APPLICATION: Students can examine the conditions under which a universal coverage, combined with exclusive franchise (i.e., monopoly) requirement improves economic welfare and the conditions under which it decreases welfare. The answer depends on whether the regulation discourages entry into the broadband market and on the price of service.

QUESTIONS: 
1. Why has Google entered the U.S. broadband industry?

2. Why is Google pursuing a strategy of laying high-speed fiber neighborhood by neighborhood as opposed to blanketing entire cities or towns? Comment on the fairness of the neighborhood-by-neighborhood strategy.

3. Why is the regulatory policy of cable provision shifting away from the policy of requiring entire cities to be blanketed?

Reviewed By: James Dearden, Lehigh University

Occupational Licensing

This opinion in the WSJ argues that one barrier to upward mobility is overly restrictive occupational licensing requirements imposed by state and local governments. The writer thinks that governments should eliminate requirements when its cost to benefit ratio is greater than one.  

SUMMARY: Cost-benefit analysis and 'lookbacks' could lift the unnecessary burdens of occupational licensing. "A widely overlooked part of Paul Ryan's antipoverty plan draws attention to the problem of occupational licensing, and it rightly calls on states and local governments "to begin to dismantle these barriers to upward mobility." But how? The answer, we think, lies in the adoption of a rigorous cost-benefit test. That test would impose new discipline on what state and local governments do-and it would eliminate unjustified barriers to job creation and economic growth."

CLASSROOM APPLICATION: Students can examine the effect of state and local regulations on entry, competition, prices, and economic efficiency of industries. Students can examine occupational licensing for example.

QUESTIONS: 
1. What are "regulatory lookbacks"?

2.When considering whether to implement new regulations, is it important for legislators and regulators to examine the economic consequences of doing so? What are the relevant economic consequences? Why is cost-benefit analysis an appropriate methodology for evaluating government regulations?

3. Who suffers the most from occupational licensing requirements?

Reviewed By: James Dearden, Lehigh University

4. Who benefits the most from occupational licensing requirements?

Google Shifting Focus

This article from the WSJ reports that Google is shifting its focus from driving visitors away as quickly as possible to providing visitors with more information. Here is the video story. 

"A central issue in evaluating Google's search output is whether people prefer Google's new detailed search output featuring information the company has generated or whether they prefer search output that does not highlight this information. 'If Google is perceived as favoring its own content over impartial search results, it would risk losing users over time. But if users find the results more helpful, they'll keep coming to Google, forcing advertisers to stay there.' The article also notes complaints by Google's advertisers and antitrust issues that may be involved in Google's new search output. 'Google may alienate advertisers such as online-travel agencies that alone pay it billions a year. Those companies fear that Google's changes will reduce the number of bookings for which they can claim commissions. The shift has spawned antitrust investigations world-wide as some online publishers complain Google wields its extensive influence over what Internet users see to promote its own content and services, in the process helping some businesses while hurting others. A U.S. Federal Trade Commission probe was closed in Google's favor more than a year ago'" (James Dearden, Lehigh University).

Creativity

The BBC's advice on sparking creativity.

Earned Income Credit v. Minimum Wage

This opinion in the WSJ argues that expanding the earned income credit to childless workers would be a more effective way to reduce poverty than increasing the minimum wage.

Here are some good questions.

1. Describe the earned income tax credit. What are the advantages of the earned income tax credit of the minimum wage in raising incomes of the working poor?
2. What is the effect on the incentive to work of the earned income tax credit compared to payments for not working?
3. The opinion piece's author is research director of the Employment Policies Institute, which receives support from restaurants, foundations, and individuals. Would restaurants favor increases in the earned income tax credit? Why would restaurants oppose increases in the minimum wage?

4.  Who "loses" if the earned income tax credit expands? Who "wins"?

5.  Who "loses" if the minimum wage increases? Who "wins"?

Tmall, Gray Markets, and Counterfeit Goods

This article in the WSJ reports that Alibata, the firm that runs Tmall, a huge online sales site in China, is telling retailers that it will remove firms selling its products on Tmall, if the retailer agrees to open a store on Tmall. "Before Burberry opened its Tmall store, more than 50 vendors—none of them authorized by Burberry—sold the brand's products on the site." The retailers don't want to be on the same site as firms selling their products in the gray market and Tmall has agreed to remove the offending firms. 

Here are some good questions:
1. What is the distinction between counterfeit and gray-market goods?
2. What is the effect of gray-market sales on the profits of a brand?

3. Why is China's Alibaba willing to remove gray-market goods from its site?