Google is a Monopoly--Who Cares?

Times are changing for Google...for the better.  According to their SEC filings, Google employs over 23,000 people.  They have assets valued at over $30 billion.  A gross profit over $14 billion.  Their stock price has increased from $100 per share in 2004 to $600 per share today.  The two founders, Larry Page and Sergey Brin are the same age as Duffka but are worth considerably more.  Larry Page owns 40,000 shares at about $600 a share his holdings in Google are worth about $24 million.  Shriram Ram was the 1st investor in and currently owns 148,000 shares with a value of approximately $90 million.  All of that aside, Google offers many "free" services which are really supported by the massive amounts of revenue generated by the paid ads from the search engine.  The EU announced at the end of November that they are looking into accusations of how the search engine monopoly is being used to influence the search results to negatively impact competitors.  One of the most vocal complaints was from "Ciao" which is owned by Microsoft.  The Economist claims that because Google has turned itself into a verb it has a form of monopoly power.  The Economist asks the question "Can You Dominate and Not Be Evil?"  What do you think of Google's monopoly power?  Do they have it?  Should they be regulated?

  

Deficit vs. Recovery--The Leader is Recovery!

Rule number one in economics is people choose.  The second rule is more painful all choices involve costs.  Now that the leaders in Washington seem poised to increase the speed of the slow recovery, Duffka asks the question--what is the cost and, of course, the benefits.  According to Mark Zandi from Moody's Analytics, "The proposed temporary tax cuts and spending increases will provide a substantial boost to growth in 2011. Instead of another year expanding at no more than the U.S. economy’s potential growth rate — with job gains of 1.2 million and unemployment hovering near 10% — real GDP growth will accelerate to 4%, job gains will pick up to 2.8 million, and the unemployment rate will decline to around 8.5% by year’s end."  Economists know that close to 100% of spending on unemployment (it would be extended 13 weeks)  compensation is spent and that has a large stimulative effect.  Economist Paul Krugman of Princeton University, feels that businesses already have plenty of excess capacity (they are not using their fixed space productively) so they will not expand much this year and he thinks GDP will only be increased by .7%.  The tax plan also includes a temporary payroll tax reduction that will lower many firms marginal cost and average total cost possibly increasing output by firms adding variable inputs (labor) which can lower unemployment if not too many discouraged workers return to the labor force looking for work.  By the way the cost is expected to be over $700,000,000,000 over the next two years.  Economics rule number 6:  The Consequences of Choices Lie in the Future.  No worries--the national debt is still just a tad under $14,000,000,000,000.

                                                  Center for American Progress analysis. 

What do you think of the costs and benefits of this proposal?  Who might you or your family benefit?  What are the costs for you or your family?

 

         

Tracking Your Every Digital Move--Government or Advertisers?

Many people have long complained about the privacy issues regarding the Patriot Act and other government intelligence programs.  Now BlueCava CEO David Norris has found a way to track digital devices, including cell phones and computers, legally.  According to the Wall Street Journal, advertisers are looking for ways to legally track all of our movements in cyberspace.  Every computer user has some unique settings that set their fingerprint apart from other users.  This way, without knowing who the user is, advertisers can see where we click, what we like, and how we interact.  Fingerprinting is almost invisible, difficult to stop and somewhat permanent.  The advertising market is a $23 billion a year industry.  The idea behind BlueCava's information is to allow advertisers build profiles of the people using the devices it has identified.  Click here to see how this is accomplished.  

Duffka's wonders if tomorrow's leaders feel this is an improvement in advertising where the benefit exceeds the cost of privacy?   

 

WiFi at 35,000 feet? Does the Benefit Exceed the Cost

Recently, American Airlines has added WiFi to many of its flights.  According to the New York Times, it costs about $100,000 to ready a plane for wireless internet access.  Many of the initial users are satisfied with the actual access but dissatisfied with the usual airline issue--space for the laptop.  Additionally, American Airlines suggests using a car lighter power adapter to power the computers because outlets are limited.  In-Stat, an Arizona based research firm, reported that fewer than 1 in 50 passengers are paying the average $5 per hour WiFi fees.  At that adoption rate In-Stat notes that revenue stream will be about $95 million which is pennies to an industry that made $14 billion last year charging for food, baggage, and seat upgrades.  Duffka's students are currently learning about profitability based on market structure.  The airlines function in an Oligopoly market structure which is dominated by interdependence and game theory type decision making.  If Wi Fi attracts customers, than game theory suggests that the dominant strategy should be to include Wi Fi on all flights within the next five years.  Kayak.com has evaluated in flight Wi Fi here.  

Black Thanksgiving to Increase Total Revenue or Profit Maximization?

This year MORE retailers like Sears and Old Navy will be open on Thanksgiving.  Traditionally, Thanksgiving Day consumers assume stores are closed then open around 6 AM the next day with large bargains on a few popular items.  According to the National Retail Federation sales are expected to rise 2.3% this year which is a few basis points less than the historical average.  Sears (owned by Kmart) is desperate for a sales increase this year after reporting an even larger loss last quarter.  Duffka is curious...who is going to Sears on Thanksgiving?  Gap, which owns Old Navy and Banana Republic, expects most of their stores to be open.  Last year 18 million people shopped on Thanksgiving.  Most of them were 18-34 years old.  Kohl's has decided to stay closed on Thanksgiving so its customers and associates (employees) "can spend time with family."  I'm willing to bet that Kohl's will have a sale every weekend for the rest of their existence.  Duffka only shops at Kohl's when there are no sales.  Any thoughts on the new Black Thanksgiving?

  

Facebook vs. Gmail: Round 1

Facebook announced this week that they will be extending the sites email function.  They will allow people to send emails to anybody instead of just Facebook members.  Google and Facebook are currently battling for ad revenue and this announcement created more competition.  Duffka loves the competition aspect and is looking for reader input on the Facebook vs. Google showdown.  Facebook has 500 million subscribers so far and growing.  Here is link to the FB announcement.

Who is going to win this battle?  For the readers that have Gmail and Facebook, which do you think you will prefer?

Put Your Money Where the Deficit is!

The New York Times recently challenged readers to fix the US government's $1,000,000,000,000 budget deficit.  Currently, the government borrows $37 for every $100 it spends (this is an improvement).  To balance the budget the government would have to cut many programs and would would have to increase taxes.  Both of these options would most likely make the business cycle (recovery) worse.  People spending less money (due to taxation) and more people lose their jobs (due to government cuts) increases unemployment (9.6% after 5 quarters of recovery).  Try the NYT's challenge here.

Duffka would like to know what you were willing to do to reduce the budget deficit.  Be specific.    

Call of Duty Creating "Sociopaths"?

"Call of Duty: Black Ops" came out this week and broke records.  According to the Wall Street Journal It recorded revenue of $360 million which was $50 million better than the second place initial sales of "Modern Warfare."  CoD's success was a pleasant surprise to Activision considering all the new technology offerings heading into the holiday season.  The anticipation of the game created a 12:13 AM text from a former athlete whom most likely spent the next 48 hours "training" on the game.  Duffka also noticed a number of students mysteriously absent on Wednesday and assumed others were honoring veterans by playing on Thursday.  Not everybody is excited about the new game though.  Fidel Castro and the Cuban government are disturbed by a portion of CoD which includes a scene in Havana, Cuba where the objective is to kill Castro, "What the United States government did not manage to do in 50 years, now it attempts to accomplish by virtual means."  The Cuban state run media also quoted Castro as saying, "sociopathic behavior among American children and adolescents, the main consumers."

Duffka asks readers for feedback regarding the game.  Does it create sociopaths?  If so, the game has a social cost and should be regulated or taxed, correct?  Entering the next unit we will examine market structure and profitability.  Does Activision  have a monopoly?

Private vs. Social Cost of Cigarettes--$150 Per Pack

In this weekend's WSJ Weekend Edition the "Numbers Guy" looked at studies that tried to calculate social costs of crime and drugs. According to a study from Iowa State University, a murder costs society $17.25 million. One of the key researchers of the study said the number could be inflated due to double counting but either way there is a large social cost. In a study that Duffka found more interesting, the social cost of a pack of cigarettes--$150. The Spanish economist used high risk jobs and their pay to equate life expectancy and the social cost per pack. There are definitely arguments regarding this process of research but the main point is the concept of social costs per pack. Obviously second hand smoke is a negative externality, but what about increased healthcare costs, lost productivity, household impact, etc? The article ends with the statement that of all the drugs alcohol has the largest social cost. The original article is here if your interested: WSJ  

Due to this study and others how would young budding economists (like my readers)recommend a reduction in social costs of alcohol and cigarettes?

GOP Takes Many Seats from Dems

Now that the voting is over we will see what the lame duck session of Congress brings forward. I am interested to see how policy will change, if at all, with a more balanced legislative process. People seem to be worried about taxes but at the same time do not like the budget deficit and the current debt of the U.S. government. The nation's debt is approaching $14,000,000,000,000. That is staggering, but as a percentage(85%) of GDP is still less than the post WWII debt of 120%.

Should we ask our representatives to fight the deficit and the debt by increasing taxes and/or reducing spending or should we focus on lower taxes now and a stable size of government(which will increase the debt/deficit)?

Economics of an Election

This mid-term election in Illinois is extremely negative. Ads blaming the incumbents for the economic woes that the public, Illinois and the Federal Government are currently in. Economics can provide each of us with the objective thinking necessary to make sound choices regarding our leaders. The Congressional Budget Office recently reported that stimulus spending through TARP I and II did save some jobs...so that begs the question "do short term plans to help the economy outweigh long term issues like debt?"

What are your thoughts or questions related to economics and the election?