Pepsi Tests ‘Naturally Sourced’ Beverage – Advertising Age – News

Pepsi is just about to launch its first new beverage since 1992.  The drink, called “RAW” will present consumers with a healthier alternative to the artificially flavored soft drinks that dominate the oligopolistic market.

Apple extract, sparkling water, grapes, coffee leaf, raw cane sugar. The list of ingredients sounds like it belongs to a health drink, but those are the components of Pepsi’s newest variant.

Pepsi Raw, being launched in U.K. test markets, is meant to be a more healthful alternative to the traditional cola. A type of Pepsi made from only “naturally sourced” ingredients, it taps into demand for premium, less-processed products.

Sounds great, right? But would you be willing to pay more for a “natural” Pepsi than for the good old fashioned artificially flavored Pepsi and Cokes you grew up with? Pepsi is betting the drink will appeal to young hipsters, and is launching it primarily at clubs and bars in six UK cities to test out the market.

So when can Americans expect to  enjoy the natural goodness of Pepsi RAW? Unfortunately, Pepsi seems to think Americans are a bunch of fat tightwads:

 ”It makes sense to launch first in the U.K. because health concerns are a bigger issue there,” Ms. Dornblaser said, adding, “It might not fly as well in the U.S. because of the price.”

Oh, and if you’re too young to remember what Pepsi’s last attempted new product launch was, allow me to jog your memory:

Hey, I LOVED Crystal Pepsi! So, would you be willing to pay more for a healthier Pepsi?

Nokia Won’t Play iPhone’s Tune

As we know, oligopolistic markets are characterized by a few large firms which act interdependently based on the actions of one another. Examples of such interdependence may include pricing and output behavior, advertising behavior, sales and promotions, non-price competition, services offered to consumers, and so on. The “game” of oligopoly is played with one very important goal in mind: maintaining market share in the face of competition from rivals.

In a previous post I discussed some of the strategies Apple has used to break into the oligopolistic market for cellular phones, which it recently did by introducing the thus far wildly successful iPhone. A chart in that post showed that as of earlier this year, the dominant firm in the mobile phone market was Nokia, with a market share of 35.1%. Apple was not even a competitor in this market until July of this year, which saw the successful launch of the iPhone, causing some of the incumbent mobile phone makers to pay close attention to the newcomer’s behavior.

Nokia executives, however, appear to be in denial of the potential threat posed by the iPhone to its dominance in the cell phone industry:

Nokia managers would never admit to being influenced by the Apple iPhone, which mobile phone industry insiders regard as clever but technologically unimpressive. “We don’t determine strategy based on the competition,” insists Anssi Vanjoki, Nokia executive vice-president and general manager for multimedia. “The consumer is our compass.”

Continue Reading »

China Mobile negotiating with Apple to carry iPhone

Try try as he might, Steve Jobs and Apple can barely launch their hottest new product, the iPhone, before the Chinese have copied it and put a knockoff on the market as quickly as you can say “can you hear me now?” But what is Apple doing making a cell phone anyway? Isn’t the mobile phone market pretty much dominated by a few big name companies already? How will apple ever survive in a market with such well established firms as Nokia, Samsung, and Motorola?

The answer is through product differentiation. The iPhone is truly an innovative little gadget. More than an MP3 player, more than a cell phone, the iPhone has features that differentiate it from most products available from the established firms in the mobile phone market. Like any firm, Apple advertises its iPod through commercials and other media in order to inform consumers about what makes its product special. What message does the following advertisement send about the iPhone?

The table below shows the market shares of the larges mobile phone makers as of late last year (before the release of the iPhone). A simple calculation finds that the four firm concentration ratio in the mobile market was 75.6%, clearly putting the market in the realm of an oligopoly (a market in which the four firm concentration ration is 40%).

With 75% of the market being controlled by Nokia, Motorola, Samsung and Sony Ericsson, the question arises whether Apple will be able to overcome the barriers to entry in the mobile market and establish itself as one of the big boys. Apple’s strategy for profits and market penetration certainly leverages the power of product differentiation and non-price competition, both firm behaviors common among firms in oligopolistic markets.

To make matters worse for Apple, only months after the iPhones release, and in the midst of negotiations between Apple and China Mobile to officially launch the product in China, a cheap, 4 GB knock-off of the fancy device comes along to entice Chinese consumers away from the 5,000 RMB (nearly $700) real deal. Check this thing out… would you be able to tell the difference?

Discussion Questions:

1. What barriers to entry exist in the market for mobile phones?
2. Why do you think so few firms produce mobile phones?
3. Do you think Apple will be able to successfully penetrate the mobile market?
4. What threat do cheaper “knock-offs” of the Apple iPhone pose to Apples attempts to compete in China’s mobile market?

BBC NEWS | Technology | Nintendo warns of Wii shortages

Looks like Brits dreaming of the Wii from Nintendo may have to wait a while longer this holiday season, as British retailers are finding it nearly impossible to fill customers’ orders. It turns out there is quite a shortage for the hot new gaming system from Nintendo!

“Although we’re receiving regular deliveries from Nintendo, Sony and Microsoft and getting the products onto the shelves as fast as we can – it’s possible that demand will outstrip supplies on some products, for example the Nintendo Wii, which has been hugely popular all through the year,” read a statement from high street gaming specialist Game…

“The Nintendo Wii consoles have proved extremely popular with our customers and have been flying off the shelves whenever we get new stock in,” said a spokeswoman.

It seems like the shortage of Wii’s in the UK should send a message to Nintendo and its retailers: RAISE THE PRICE!! One way retailers have tried to do this is by bundling the consoles with up to three or four games, meaning to take home a console shoppers would have to fork over 300 GBP. This seems like a great strategy for retailers faced with strong demand from customers, given that they are probably not allowed to charge above Nintendos suggested retail price for the console itself. Continue Reading »

by Annie Sung and Kristie Chung

Which do you prefer, the Wii? the XBox 360? the PS3? How about other video game consoles? Can you even think of any other video games consoles? Hmm… let’s see… how about the Sega? Wait, no, haven’t seen any of those in a while… what about the Atari? Oh, shoot, nope! Oh yeah, don’t forget the Caleco Vision (for the record, Mr. Welker’s earliest video game memory was of playing Smurfs on a Caleco Vision).

The fact is, today, the market for video game consoles has shrunk to three dominant firms: Nintendo, Microsoft and Sony. This podcast will investigate the video game console market, examine its characteristics, including the elasticity of demand for the different consoles, and conclude whether it exhibits the features of an oligopoly.

Wetpaint, the free online wiki service, has stepped up its use of non-price competition in an attempt to increase its market share in the wiki market. In addition to releasing several Mac vs. PC parody videos meant to showcase the user-friendly, customizability of Wetpaint’s wikis vs. its rivals, the company also announced this morning that it would be offering ad-free wikis to educators!

As a user of Wetpaint since early this year, the distracting presence of advertisements bothered me; the decision to provide educators with ad-free wikis is huge, and makes Wetpaint even more attractive as a platform for hosting online learning communities for teachers of all grade levels.

You may be thinking, “Huh? There’s a market for wikis?” Well sure there is. Just because something’s free for us consumers does not mean it’s not a profit oriented business. Wetpaint and its rivals compete for consumers in an oligopolistic market in which competition is not based on price (since its products are essentially free), rather on product differentiation based on features and communicated through advertising and public relations.

Continue Reading »

 

Managing Globalization » Business Blog » International Herald Tribune » Blog Archive » China takes to the skies

and the full article: China hopes a homegrown regional jetliner can challenge Airbus and Boeing – International Herald Tribune

Here’s another great example of a market that is set to experience a serious change in the near future. The oligopolistic market for “regional jets”, long dominated by two firms, is set to see the entrance of a new manufacturer. From whence doth the new bird fly? From the far East, no less…

“After a couple of false starts, the Chinese commercial aircraft industry may finally be getting off the ground. Starting next year, the prosaically named China Aviation Industry Corporation 1 plans to offer a regional jet that will compete directly with the two dominant forces in the market, Canada’s Bombardier and Brazil’s Embraer.”

Without even reading the rest of this article, you should be able to picture what will happen in the market for regional jets once the Chinese planes start rolling off the assembly lines. This article will also prove relevant when we begin studying market structures. What are the effects of a more competitive market for regional jets?

“Consumers in the rest of the world could benefit, though. Moving from two companies to three in a growing market could bring aircraft prices down, and eventually airfares as well – especially if the Chinese company’s costs are lower.”

But what of the widespread concerns that have emerges of late about the quality of products coming out of China?

“…if China has to combat worries about product quality in areas like foods and toys, just imagine the hurdles it will face with a passenger plane. Those benefits could still be many years away, depending on how people perceive the new product. Would you fly on a Chinese-made airplane?”

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While students and teachers across America settle into their summer routine and look forward to three more weeks of summer vacation, the first week of August marks an unseen exodus of thousands of international students and teachers in countries on every continent. For some reason, international schools all seem to start about two weeks earlier than the post-Labor day start date enjoyed by most public school in the US. Here at Shanghai American school, teachers arrive in droves around the 7th and 8th of August, just in time for our first work day on the 9th.

My wife and I returned to 95 degree heat from the pleasant 70′s of Seattle last night to begin preparing for our second year at Shanghai American School. In a week SAS will welcome around 2900 students, making it one of the largest international schools in the world. As part of our orientation this morning, our director, Dr. Dennis Larkin, shared a bit of SAS’s 95 year history with the faculty, enlightening many of us to the school’s storied past stretching back to the concession era of Shanghai’s “golden age” when thousands of Westerners made their settlements in the city’s center. 100 years ago Shanghai underwent a renaissance unseen in China’s thousands of years of history. European influence brought the city into the 20th century architecturally, culturally, economically, and perhaps more notoriously in the realm of criminal activity as gangsters took over the city through much of the 20′s and 30′s.

With the large Western presence came a demand for Western schools, thus in 1912 Shanghai American School welcomed its first class of 12 students. By the 20′s enrollment rose to 600, and by the 30′s it approached 1,000. In 1937 China was invaded by Japan, and foreign firms and embassies began nervously moving their people out of Shanghai. By 1939 Shanghai had fallen to the Japanese and the school grounds were occupied by Japanese troops. But with the surrender of the Japanese in 1945, the school was back in operation, albeit for only a short time as a civil war between the Chinese Communist Party and the US backed Nationalists brought violence to the streets of Shanghai once more. By 1950 Beijing had fallen to Mao and the Communists, and SAS was shut down “for good”. Its doors would remained closed for 30 years until 1980, when Mao had died and Deng Xiaoping had ushered in the era of “Reform and Opening”, a euphemism for westernization. Once again SAS opened for business.

In the 27 years since the school’s rebirth, the student body has grown from the seven children of American diplomats to 2,900 students from over 50 countries. In the last five years alone the student body has nearly doubled in size, as the school has added a second campus and countless new buildings to serve the growing population of foreigners in Shanghai. Over the same 27 years, around ten other international schools have opened in Shanghai, some with two or three campuses spread across the vast city, several serving over 1000 students also from scores of foreign countries. What impact has the opening and expansion of SAS and other international schools had on tuition paid by foreign students in Shanghai? You may think that with so many schools competing to attract students, each school would have to lower its fees in order to attract students away from its competitors. Well, you’d be wrong. SAS increased its tuition fees by 10% this year, bringing a year’s tuition to around $22,000. Its competitors charge something in the same ballpark, meaning a year of schooling at any of Shanghai’s international schools will cost a family more than a year’s tuition at most state universities in the US.

Discussion Questions:

So, what does all this history and data have to do with economics? Here’s a simple supply and demand question for you. In 1980, international schools in Shanghai had room for, let’s say 20 students total. I am not sure, but I’d guess tuition in 1980 probably ran around $2,000. Today, there are somewhere around 10 international schools with room for probably around 10,000 students, and the average tuition is somewhere in the realm of $20,000.

1. How would an economist explain the 1,000% increase in tuition over the last 27 years, given the fact that today international schools in Shanghai have the capacity to serve 500 times as many students as they could in 1980?
2. Could you draw a supply and demand diagram illustrating the changes that have occurred since 1980 in the market for international education in Shanghai?
3. Let’s be honest, $22,000 is a lot of money for a year of school. What would have to happen in the market for international education in Shanghai for the tuition fees to go down? Identify two scenarios that would result in a tuition decrease. Illustrate these scenarios on your diagram.

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IF you’ve visited this blog in the last two weeks, you’ve probably seen the picture below of a beautiful sunset, a distant island and a wispy palm. Turns out I stayed two nights on the beach that picture was taken from, Ahmed in Bali’s remote northwest corner! What a beautiful island Bali is! Unlike many touristy places in Southeast Asia such as Phuket and Samui in Thailand, Bali is an island paradise that has managed to develop a thriving tourist industry while simultaneously maintaining its distinct Hindu culture and traditions that awe visitors and help them understand why it’s called the “island of the gods”. Not only do most Balinese outside the one or two major cities still live in the traditional style houses, but they actively practice their unique form of Hinduism (imported from India via Java in the 11th century), maintain the traditional forms of dance and religious ritual, and sustain themselves by practicing any number of artistic trades rooted in the island’s rich and colorful history. Indeed, in most villages we passed through, it was hard to tell which buildings were temples and which were houses. As much of Indonesia and the rest of Asia have rushed head-on into the age of globalization (often meaning westernization), Bali has thankfully held on to and even fostered one very precious and all too rare commodity: its own history.

Certainly after a year in Shanghai, where the closest thing to religion among urban Chinese is the pursuit of wealth, a couple of weeks in the rich spiritual heart of an ancient Hindu island culture was just what I needed to remind myself what was important in life. But alas, once an economist always an economist, and even with a thousand years of rich cultural heritage to turn my attention from school and economics, I could not help but notice the intricacies of Bali’s economy and how tourism and globalization have affected this remote island culture. My next few posts will cover casual observations made during my 16 day trip to Bali about its local economy and how it has been shaped by the global economy and tourism.

Here’s a follow-up to the previous post about stupid Americans acting stupid. Looks like the stupidity is not limited to the idiotic idea of boycotting gas for a day, rather it is alive and well among America’s leaders. Here’s the Democrats’ solution to the high gas prices faced by Americans today:

Join the Campaign to Change America / John Edwards ’08 Blog

“The ENERGY PRICE GOUGING PREVENTION ACT will provide immediate relief to consumers by giving the Federal Trade Commission the AUTHORITY to investigate prices–focusing on the causes, the burdens they put on American families and businesses, and solutions.”

And here’s an insightful and entertaining critique of the Democrat’s proposed bill by economist Tim Haab:

Environmental Economics: All politicians are idiots and other obvious thoughts on high gas prices

“There are two possibile explanations for the Democrats proposal of the STUPID bill. 1) They think the public is too stupid realize they are trying to “do something” by proposing a STUPID bill, or 2) They are idiots. Since Env-Econ readers obviously represent a cross-section of the public, and since Env-Econ readers are smart enough to know that this bill is STUPID, I have to conclude that 1) is logically impossible and therefore, 2) must be true. So we’ve now proven that Democrats are idiots. We’re halfway there.”

The stupidity of this proposed bill lies in the fact that Democrats seem to champion environmental protection, reduction of greenhouse gas emissions, and a solution to the global warming problem, while simultaneously fighting for regulations that REDUCE the price of greenhouse gas emitting fuel, the repeal of gas taxes, the expansion of oil refineries’ capacity, and other measures that will assure the cheapest gas possible for American drivers. The two goals are incompatible, as the solution to the greenhouse gas problem requires HIGHER gas prices, not lower gas prices.

What policy makers don’t realize is that “high gas prices are NOT an economic or political problem.” Markets allocate resources efficiently when markets are allowed to work. Higher gas prices reflect the basic economic law of scarcity, supply and demand. With developing countries like China demanding a greater proportion of world reserves than ever before, American drivers preparing for their summer road trips and a war raging in the middle east, higher prices at the pump should come as no surprise. Intervention in the gas market will result in greater inefficiency, as prices kept artificially low by government interfere with the market mechanism, increasing the quantity of gas demanded, and further exasperating the depletion of this scarce resource (not to mention contributing to the nation’s greenhouse gas emissions). The shortsightedness of legislators may only postpone the inevitable price rises of this resource for tomorrow’s consumers, while work in the complete opposite direction as they desire on the global warming front.

Ultimately, higher gas prices are necessary and desirable if we are to transition to more environmentally friendly fuel sources. As petrol reaches $4.00 per gallon, consumers will think more seriously about buying more fuel-efficient automobiles, using public transportation, choosing to cycle to work and taking other such steps towards reducing their carbon footprints. This, after all, is the only way Democrats will ever achieve their other supposed goal of avoiding the catastrophe of global warming and achieving greater energy independence; and this can only happen if gas prices continue to rise.

So what about “price gouging”? Concentration of market power among a handful of firms in the oligopolistic oil market may indeed result in some degree of collusion and setting of prices above equilibrium. This is inefficient, yes, but it occurs in a market in which, unregulated, equilibrium output and price would also be inefficient due to the existence of negative externalities. In other words, even were oil companies competing directly, the price would be too low and output too high since the price of gas does not include the full social cost of gas consumption. In a way, the inefficiency arising from excess market power corrects the inefficiency arising from the existence of externalities. The catch is this: consumers end up lining the pockets of oil companies rather than filling their own national tax coffers, since the higher price is a result of collusion rather than taxation.

What policy makers should be discussing is the imposition of new gas taxes, which, rather than only increasing the price consumers would pay, would reduce the ability of oil firms to price gouge, taking a chunk out of their “record profits” and turning it into tax revenues. These revenues could then be invested into research of new fuel technologies, the subsidizing of which would increase their supplies, making them more competitive as a substitute for petrol and thus more attractive to consumers. This helps politicians achieve their goal of energy independence and reduction of greenhouse gas emissions. Lower gas prices NOW will only postpone this important transition.

Here’s another clear presentation of why politicians should not meddle with oil prices: Knowledge Problem: Price Gouging – Politicians vs. Economists

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