Economic prosperity in Aftrica

In this opinion published in the Richmond Times-Dispatch, Walter Williams argue that the solution to Africa's economic woes is more economic freedom. 

Does the minimum wage spur automation?

This opinion in the WSJ argues that on effect of the minimum wage is for employers to substitute capital for labor.

Can you trust consumers?

This letter to the editor in the WSJ argues that government interference in otherwise free markets may protect consumers from mistakes that they would otherwise make.

Wal-Mart considering price match

This article from the WSJ reports that Wal-Mart is considering expanding its price-match program to include online sellers as well as bricks-and-mortar stores. This article from Yahoo! has more details about the Savings Catcher program.

TOPICS: Pricing

SUMMARY: Wal-Mart is testing a program to match online prices from rivals like Amazon this holiday season, a move that could make the discounter more competitive but cut into profits.

CLASSROOM APPLICATION: Students can evaluate two aspects of Wal-Mart's price-matching strategy. First, they can examine the factors that caused the company's to switch its pricing strategy from not matching online prices to matching online prices. Second, students can study whether the price-matching strategy is anti-competitive in the sense of resulting in higher posted prices.

QUESTIONS: 
1. (Introductory) Why did Wal-Mart introduce its online and mobile tool Savings Catcher?

2. (Advanced) Will Wal-Mart's price-matching strategy lead to Amazon setting higher prices? Evaluate the effect of the introduction of Wal-Mart's price-matching strategy the increase in Amazon's profits from lower the price it sets for a particular product?

3. (Advanced) What is the effect of the quantity of Amazon's sales of a particular product on Wal-Mart's profit from shifting from not matching to matching Amazon's prices?

Reviewed By: James Dearden, Lehigh University

Natural gas prices are falling

This article from the WSJ reports that the price of natural gas is falling at a time in the year when it typically starts to increase.

SUMMARY: When cold weather looms across the U.S., natural-gas prices usually rise. This year they are falling, after a record production boom nearly replenished stockpiles left at their lowest since 2003 by last winter's freeze.

CLASSROOM APPLICATION: Students can use supply and demand to examine the effects of shifts in both demand and supply on the equilibrium price of natural gas. Also, they can compare factors, such as weather, that have differing effects on the prices of two major energy sources: natural gas and oil. Lastly, they can examine how bottlenecks in supply chains affect prices.
QUESTIONS: 
1. (Advanced) How do weather forecasts affect the price of natural gas? Why does the weather have a greater effect on the price of natural gas than it does on the price of oil?

2. (Advanced) During periods of high demand for natural gas, how do bottlenecks in the natural gas supply chain affect the price of natural gas?

3. (Introductory) Why did prices for prices for natural gas last week reach to their lowest point of 2014?

Reviewed By: James Dearden, Lehigh University

To buy the bundle or not to buy the bundle?

This article from the WSJ is a great example of the effects of (un)bundling. 

SUMMARY: A future where television viewers subscribe to each channel they want could make the average cable TV bill-which hovers about $90-seem like a bargain.
CLASSROOM APPLICATION: Instructors can use the article to compare bundling and a la carte pricing. They can present bundling as a means to extract consumer surplus and also possibly as a means to improve economic efficiency (by providing goods should be, but are not, provided under a la carte pricing).
QUESTIONS: 
1. (Advanced) Consider a simple case in which two people can subscribe to a cable network, ESPN for example. Person 1 values the network at $10 and person 2 values it at $20. The total cost of providing the network to either one or two people is $25. Is it efficient to provide the network? Suppose a cable company charges each person the same price for the network. What is the minimum price for which the network would be provided? If the network is provided a la carte at this price, would both people subscribe to the network? Suppose the network is bundled with others in a cable package. In doing so, the price of the bundled package would increase by the minimum price needed to provide the network. Is it possible that both people would subscribe to the bundled package? If so, would the shift to bundled networks from a la carte pricing improve economic efficiency?

2. (Advanced) Consider two people. Person 1 values ESPN at $12 per month and Bravo at $5 per month. Person 2 values ESPN at $5 per month and Bravo at $12 per month. Suppose the total cost offering each network is zero. What is the profit-maximizing (i.e., revenue-maximizing) price of the bundled networks? What are the profit-maximizing prices of the a la carte networks? Does the cable company prefer to bundle the networks?

3. (Introductory) "All these things are so much more expensive when you separate them out," said David Bank, an analyst at RBC Capital Markets. "You are going to have to pay more for less choice." Does this statement imply that everyone would be made worse off by the shift from bundled network pricing to a la carte pricing? Is it the case that everyone would be made worse off?

Reviewed By: James Dearden, Lehigh University

Price discrimination on the Web

This article in the WSJ reports that e-commerce companies charge different sums for the same goods, or push some people toward higher-priced offers and do not tell the consumers.

Labels: Price discimination

TOPICS: Price Discrimination

SUMMARY: A new study of top e-commerce sites found the practice of personalizing prices for the same goods, or pushing some people toward higher-priced offers, is more widespread than previously understood. Related article: The prime time to find airfares has changed. Scott McCartney looks at when to make a purchase and how early the lowest prices pop up.

CLASSROOM APPLICATION: Students can evaluate a third-degree (i.e., multimarket) price discrimination example in which online retailers according to whether students are logging in using Apple's iOS mobile operating system. They can also evaluate a second-degree price discrimination example in which airlines price according to the day of the week in which consumers book flights.

QUESTIONS: 
1. (Introductory) Define third-degree price discrimination. Cite an example from articles of this type of price discrimination.

2. (Advanced) Define second-degree price discrimination. Cite an example from the articles of this type of price discrimination.

3. (Advanced) Why do sellers price discriminate? Include a discussion of price elasticity of demand in the answer.

Reviewed By: James Dearden, Lehigh University

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