How technology eased the deadweight loss of Christmas

Christmas is upon us. Will Santa bring you what you asked for this year? The chances are much improved these days – at least if you’re an adult.

Barely a day goes by without the leviathans of Silicon Valley attracting opprobrium for some social crime, whether it’s destroying our attention spans, pushing fake news or tearing apart communities – you name it.

But this is also a time of year when the convenience and value these internet technology firms bring to our lives actually comes into focus.

In a book published in 2009, the economist Joel Waldfogel laid into the inefficiency of gift buying for relatives at Christmas. “We make less-informed choices, max out on credit to buy gifts worth less than the money spent, and leave recipients less than satisfied,” he complained in Scroogenomics. Christmas is, he complained in the jargon of economists, a festival of “deadweight loss”, the term economists often use for waste.

Yet Amazon has delivered a way around this deadweight loss – at least for adults who want to buy gifts for each other. For those who don’t know, its “Wish List” function allows you to browse the “everything store” and put some of the items you’d like on a special list which you can then share with your friends and family.

Top it up through the year and there’s a good chance you’ll be pleasantly satisfied on Christmas day. Your relatives may well have got you something you actually want. The surprise element might be there too, if like me you tend to forget what you put on your wish list on a whim back in March.

Online shopping is another way technology has made many of our lives in the festive season merrier. In 2008, online sales as a proportion of all retailing was 4.2 per cent. In November it hit an all-time high of 17 per cent. Expect it to go higher still in this year’s Christmas shopping period.

No doubt there are some people who actually enjoy schlepping through the town centre laden down with bulky bags and parcels. But for many it’s much nicer to get the clobber delivered to one’s home by a delivery man: less deadweight Christmas-time loss.

Waldfogel’s thesis was criticised by other economists for missing the point: namely, the intrinsic value of the act of exchanging gifts at Christmas. One woman’s deadweight loss is another’s social “signal” of love and affection.

Yet technology can facilitate both. Our daughter received a birthday party invitation recently which asked for no presents for the child, but a donation to a chosen charity instead. Go online. Enter the code on the invitation. Make a donation and an automatic message goes to the family to notify them.

It won’t be for everyone, but imagine, parents, if this caught on: no more last-minute trips to Toys R Us to buy some piece of moulded plastic, uncertain about whether the child has it already, uncertain over whether another parent is buying the same piece of plastic, unsure about whether it will even get played with. Just a few clicks online instead, and much of the deadweight loss involved in children’s birthdays is instantly wiped out.

And this goes for charitable giving more generally. 

Making donations to charity, such as The Independent’s Help a Hungry Child Appeal, is easier than it ever has been thanks to the internet. As contactless technology rolls out, it should become simpler to donate to street fundraisers too. Boris Johnson’s “Penny for London” scheme failed, but the large potential for contactless charity microdonations surely remains.

These are the kind of subtle ways in which technology – for all the undeniable new social headaches it brings – is enhancing our lives and experiences. So merry deadweight loss to one and all.

This article appeared in The Independent on 24/12/17

#christmas #deadweightloss #JoelWaldfogel

Bundling is profitable for cable firms and internet streamers. But is it a bundle of fun for custome

Imagine a business model that enabled your firm to compel customers to purchase things from you that they wouldn’t otherwise buy. To sellers it probably sounds like a dream. To buyers it sounds like a bad joke. But it’s neither a dream nor a joke. It’s called bundling.

Many people purchase a satellite or cable TV subscription for a particular piece of content – maybe live Premier League football matches or episodes of Game of Thrones – and watch none, or little, of the other stuff available as part of their subscription.

Even the most voracious devourers of entertainment will only ever consume a small fraction of what they have access to as part of their packages. There are, after all, only so many hours in a day, even for telly addicts.

Consumers would be better off financially if they only paid for what they actually consumed. But under this arrangement the media companies would be worse off. So instead of offering pay-as-you-watch deals, they bundle.

Sky in the UK and the big cable companies in the US have extracted large profits from this selling practice in recent decades. They’ve used their exclusive rights to some forms of sports broadcasting or other premium entertainment content to effectively compel customers to buy bigger packages.

But new technology in the form of internet streaming subscription channels now presents a commercial challenge to these bundlers. In the US, financial analysts talk of “cord cutting”, to describe Americans ditching their expensive cable connections in favour of cheaper streaming services.

The epic deal last week by Disney to buy most of Rupert Murdoch’s Fox movie and TV assets and also his share in the streaming service Hulu was heavily motivated by the rise of Netflix and Amazon Prime.

Disney is preparing to invest in its own streaming platform, leveraging its vast catalogue of exclusive films, TV shows and sports rights.

Yet streaming has not killed bundling, but rather re-invented it in a new form. The streaming companies, of course, have their own bundles. If you want access to their own burgeoning exclusive content, you have to buy the whole package. These are cheaper than satellite or cable bundles, though the cost soon adds up if you have more than one.

So what should we make of media bundling from an economic perspective? Bundling is essentially a way of firms to extract the “consumer surplus”, a reference to the difference between the maximum customers would be willing to pay for something and what they would be asked to pay in conditions of perfect competition.

Of course, as this implies, consumer surplus extraction is only possible because competition is imperfect and sellers have some degree of market power. So should we consumers be outraged at the existence of bundling? Should we be demanding regulatory intervention to prevent it happening?

It depends. High profits for media companies from bundling might be seen as socially useful if the surpluses are re-invested in quality cultural or educational content that might not otherwise be made. This kind of welcome cross-subsidy was common in the era when print newspapers (a form of content bundling) had a virtual monopoly on this distribution of written current affairs content. 

Plenty of superlative, but expensive, foreign and specialist reporting was sustained in that way in the pre-interent era. But if the excess profits from bundling only end up lining shareholders’ pockets this becomes a transfer that simply harms consumers.

And if the practice of bundling serves to stifle competition, blocking potentially innovative new firms from coming into the market, that’s even more damaging to consumer welfare in the long term.

This represents a huge challenge for market regulators in this revolutionary era of instant digital content delivery  and the penetration of online giants such as Amazon into a stunning range of new commercial sectors.

The competition authorities in the US and Europe took on the software leviathan Microsoft in the late 1990s and 2000s over its bundling practices. Are they prepared to do the same with the Silicon Valley giants and entertainment conglomerates of today? And should they?

A great deal of the coverage of the Disney-Fox takeover has been from the perspective of the companies themselves and their powerful leaders. Is this the beginning of the end of the Murdoch empire? How long will Disney’s veteran boss Bob Iger stay in his post? Reasonable questions. But a little more consideration to the economic interests of the little people – their customers – would also be in order.

This article appeared in The Independent on 17/12/17

#Disney #Amazon #Fox #cable #internetstreaming #Netflix #bundling #RupertMurdoch

Everyone’s in favour of regional economic rebalancing for the UK – until someone suggests actually d

We’re all familiar with nimbys: people who are in favour of new housing developments so long as it’s “not in my back yard”. But now they have some competition in the disingenuousness stakes from the “YBNTs”.

Almost everyone claims to support regional economic rebalancing in the grossly over-centralised UK. And it’s pretty plain that this is unlikely to be achieved without moving some operations out of the over-stuffed capital city of London, with the onus on central government to take a lead.

But propose transferring specific resources and one immediately starts hearing: “Yes, but not that.” What the YBNTs seem to envisage is a form of immaculate rebalancing, which involves no disruption whatsoever to the capital and its workers. They were out in force this week after Labour suggested moving “some functions” of the Bank of England out of London to Birmingham.

The first thing to note is that Labour’s “some functions” proposals were misleadingly written up by the (London-based) media as Jeremy Corbyn wanting to move the entire Bank, wholesale, to Birmingham.

We had the same kind of hysterical media reaction when the BBC moved its sports and children’s TV operations to Greater Manchester in 2004. There were similar wails when the Government said this year it wants to shift “part” of Channel 4 out of London. And don’t even mention the idea of migrating Parliament up north while the asbestos-ridden Palace of Westminster is extensively repaired. In the end MPs refused even to move across the road, never mind decamping to the Bull Ring.

It’s amusing to see how business journalists and political commentators, who can usually be relied upon to preach the abstract economic ideal of mobile workforces and invigorating commercial churn, suddenly turn into Mick Cash on a bad day when the possibility emerges they might have to move themselves.

It’s true that regional relocations can fail. The transplant of most of the Office for National Statistics out of London to Newport a decade ago has not been a success and the agency plainly lost some valuable expertise in the transition.

Yet, as a relocation prospect for staff, the third largest city in Wales is very different from Manchester and Birmingham, the second and third most important urban hubs in the country.

As regards the Bank, one of the objections to Labour’s suggestion is that the regulator-cum-policymaker’s current berth in the heart of the City of London represents an intangible benefit that must not be jeopardised. But have they ever considered that this proximity might actually be a source of weakness, opening up the Bank to excessive lobbying and regulatory capture by the hundreds of firms surrounding its Threadneedle Street fortress?

Conversely, following the complainants’ proximity logic, why is the Bank’s physical distance from manufacturers in the North-west, Midlands and North-east, not a disadvantage for its policymakers? As the Bank of England itself frequently tells us, its job is to set interest rates for the whole country, not for one sectional or regional interest.

And the history of the Bank and the Government in this regard is hardly unblemished. The strong pound in the 1980s onward reflected the boom of the City of London in the Thatcher era of deregulation. But the overvalued currency was harrowing for UK manufacturing. 

And in the post-1997 era of operational independence, even the former Governor, Mervyn King, has openly wondered whether the Bank might have got it wrong in tolerating a super-charged currency, and all its associated distortions, in the years leading up to the financial crisis.

This is not a clinching argument for relocation. It’s facile to claim that if the Bank’s HQ had been historically based in Birmingham we would have avoided the financial crisis. But it supports the case for keeping an open mind.

Each relocation proposal should be scrutinised carefully and judged on its merits. The tone matters. And the tone reveals. The suggestion of a shift of some resources to one of our major regional economic hubs should really not be provoking the pearl-clutching reaction we have seen in recent days. And the fact that it does merely underscores our inordinate national over-centralisation problem.

This article was first published by The Independent on 12/12/17

#BankofEngland #Birmingham #Manchester #regionalrebalancing