Bellerbys Economics - Mr Stephenson

Tuesday, August 28, 2007

iPhones - A suicide bid from Apple?

The decision by Apple to lock the iPhone into American company AT&T's carrier network is a good example of barriers to entry - in this case both technical and legal. If you can create a barrier to entry, you can of course increase your prices substantially creating abnormal profits. Apple are also hoping that their brand identity as a 'modern, progressive, people-based' company will enable them to bring their largely sympathetic customer base over to the AT&T network with them. What we also have here is an example of vertical bundling - a manufacturer (Apple) dictating which service provider you should use (AT&T). It's questionable whether this is even legal under EU Competition Policy where the emphasis is on creating competition in the different parts of interconnected markets - eg the rail network and railway journey providers; the gas pipeline infrastructure and the gas service provider - and so on.

But can Apple make it work? Pressure already seems to be mounting on them. On the technical side, it appears relatively simple to break the lock. Irish company Unique Phones claims to have already done it - as well as a 17-year old hacker, George Hotz, who clearly lives up to his name. In addition, website is already offering access to multi-network iPhones. In some areas, it seems that if you get your services from AT&T partner companies, you can also use your iPhone with the partner without paying AT&T a penny. Some US consumer organisations are also calling for an iPhone boycott by consumers.

So Apple and AT&T are having to resort to stronger and stronger legal threats to back up their plan - thus damaging Apple's brand as a people-friendly company. People had already questioned Apple's link with AT&T - a company with a somewhat mixed history.

But if it works, this could catapault Apple up the league table in the mobile phone industry. It will be interesting to see if Apple can reach their dream of penetrating 80% of the mobile phone market or whether it will be swept aside in a wave of discontent over high prices and lack of choice.

Sunday, August 12, 2007

World's Most Expensive City

Which is the World's most expensive city to live in? New York? Paris? Tokyo? No, it's Moscow, according to the Mercer Human Resource Counselling Group - an organisation that helps multinationals set salary levels for their executives in different countries.

Moscow has the world's highest concentration of billionnaires (that's billion, not million) with over fifty of them - and a small army of millionnaires. This does, however, illustrate to some extent the growing inequality in Russia (Gini Coefficient of 53 whereas 40 is seen as 'acceptable'). Moscow also appears to be developing a two-tier society quite quickly, suggesting an even higher coefficient in the capital. One group - the very rich - live in protected estates with high security, shop only in the expensive malls around Alexander Gardens and the Kremlin, educate their children overseas and have holidays in Florida and Goa. For this group, a cup of coffee in the restaurants around Stary Arbat through Tverskaya costs an average of £3.14. Most Muscovites, however, live a different life - not so very different from people in the UK. If you know where to look, you can still get a cup of coffee in the local shopping areas for 30p.

London is the world's second most-expensive city with housing costs being the main reason for this. Average price for a house in London is now £350,000 - much higher as you move towards the centre. This is about 18 times the annual earnings of the modal average group. Ironically, part of the problem surrounding housing costs in the capital comes from rich overseas investors and property groups injecting money into the capital's booming housing market (and football clubs like Chelsea!). On the other hand, if it wasn't for the size of this capital injection, the UK might have some difficulty coping with its poor current account position - swings and roundabouts, as we say here.

Cities 3, 4 and 5 are all in the booming Asian economy - Seoul, Tokyo and Hong Kong. Much of the investment for China's booming economy comes from these three financial centres and profits flood back. Seoul is also helped by the strength of the won at the moment, increasing the relative strength of average earnings in dollar terms. Hong Kong now has officially the world's greatest concentration of millionnaires with more than 1 in 20 of the population being in this fortunate position according to Guangdong News. As half of these live on Hong Kong Island, it means that 1 in 7 people on the island are millionnaires.

And what's the world's cheapest city? That can be a bit difficult to decide depending on how you define a city - but it looks like it could be Asuncion in Paraguay. In Asuncion, a beautiful riverside property, will cost you £36,000. It's easy to buy property in Paraguay which welcomes overseas investment with no restrictions and property prices are rising by 10% a year in real terms - so you should even make money from the deal. Worth a thought on a cold rainy day in England!