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May
17
It is amazing how a fifteen minute chat on parallel imports and an earlier e-mail ends up with a one-liner that gets it wrong. But that was the case in an article in the Age today. Let me summarise my views and for those interested, the full e-mail to the journalist is below.
- On the information in the article, there is no issue of ‘price fixing’ (or collusion) but may be issues of resale price maintenance (RPM) depending on the actual contracts or agreements. The ACCC has been following this closely for internet sales generally;
- There is almost certainly no issue of abuse of market power with the sort of businesses (small fashion houses) referred to in the article;
- Exclusive distribution licenses for Australia are not illegal but can raise competition law issues if businesses abuse market power or ‘substantially lessen competition’. For a summary of a previous related decision see here.
- The Bricks and Mortar complainants are like children putting a finger in the dyke that is about to breach. Unless they get business models to compete with on-line businesses they will be swept away. Attempts to block parallel importing just hurts consumers and will be ‘avoided’ by clever entrepreneurs. The government should act to assist this form of competition, not to block it, despite the squeals from the vested interests in the retail sector.
So what should the ACCC do? Keep a look out for RPM (and I would be surprised if they were not doing that already).
Read more
May
17
A modern day antitrust.
Stephen King | Leave a Comment
A presentation at the SSNED workshop last week highlighted that businesses are still playing the same tricks after 100 years of competition laws. These laws are known as ‘antitrust’ because of their US heritage. In the 1880s, Standard Oil used an old legal concept – a trust – to combine the decision making of a group of otherwise competitive companies. Under the trust structure they could cooperate rather than compete. These structures were outlawed in the US by the Sherman Act.
Professor Lino Briguglio from Malta presented a modern day version. His presentation is here. In summary, a group of competitors in road construction and asphalting formed a joint company to tender for government contracts. They did not individually tender and when their joint company won the tender the work was distributed internally. So competition gone and a cozy life for all!
The case highlights two points. First, as Professor Bill Kovacic noted at the workshop, the best place to start looking for collusion for countries introducing new competition laws is often government contracting. This is usually an area ripe with cartels.
And second, the more things change, the more they stay the same!
May
16
I am involved in a session at the Australian Conference of Economists in a few weeks looking at this issue. And it has been discussed elsewhere – such as at the Royal Economic Society conference (thanks to Alex Millmow for the link). Here are some preliminary thoughts (feedback very welcome). Read more
May
14
I was part of a great workshop last week looking at competition laws in really small countries – as in Pacific Island States, such as Vanuatu, the Solomon Islands, Samoa and Tonga. The forum raised a bunch of questions about how to structure competition laws and where they fit in broader economic policy. Read more
May
10
Instead of fiddling with superannuation, how about a progressive consumption tax?
Stephen King | 2 Comments
The federal budget has (again) changed the rules of superannuation. The aim of superannuation is to encourage savings and reduce reliance on government pensions in our old age. But fiddling doesn’t help. People wonder if their superannuation is safe from government opportunism.
So perhaps it is time to think more broadly about encouraging savings. One option is a progressive consumption tax. Robert Frank discusses the details here. But there are three key points:
- It encourages savings;
- It is as easy (or easier) to implement as our current income taxes (this doesn’t mean it is simple – neither system is simple); and
- It fits recent research on happiness, spending and ‘relative’ consumption.
I will leave the details to the Frank article – but it is worth thinking about before we fiddle with superannuation again in next year’s budget.
May
8
A comment to John (Durie) on price signalling
Stephen King | Leave a Comment
John Durie in the Australian comments on my recent interview with Graeme Samuel and the bank ‘price signalling’ rules. In particular:
In his speech, Sims agreed with his predecessor, Graeme Samuel, on the stupidity of restricting price-signalling rules to banking, but didn’t go so far as to say they were drafted so badly as to be useless.
The key point missed by John is that there are two parts to the price signalling laws – a really good bit and a useless bit.
The laws against private price disclosures are sensible and strong. As I have argued before, it is difficult to think of why competitors should be privately disclosing prices to each other except for anti-competitive purposes. And if there is a legitimate reason, the behaviour can be cleared in advance by the ACCC. These laws should be extended to all business.
The public price disclosure rules are poorly designed and unlikely to ever be used unless a banker has some sort of brain explosion. The recent RBA interest rate change led to lots of public discussion by banks about interest rate changes and strategy – but it is hard to imagine that any broke the law. This part of the law should be revoked.
John mentions that support is growing to broaden the price signalling laws. Good! This should be supported – because broadening the private price signalling laws will help competition and undermine collusion. If the cost of broadening the ‘good’ bit is also broadening the ‘bad’ bit, so be it.
May
7
The Crisis of the University of Sydney
Rabee Tourky | 40 Comments
Something I’ve been meaning to do is say something about Mike Spence’s arbitrary firings of tenured academics at the University of Sydney.
The truth is that like many busy academics – and most academics are busy teaching and researching – I basically avoid thinking about what has been happening in Sydney and how it affects the rest of Australia.
It seems obvious from here that the narrow-minded policies of the current Sydney VC are basically a gradual, long-run form of institutional suicide — and that’s bad for all Australian universities.
The nature of the sacking of tenured academics in Sydney means that no up-and-coming academic will want to work in Sydney and that all serious senior academics in Sydney will be looking for new jobs. It could also mean that it will be difficult for any Australian university to attract senior research talent from overseas; especially in areas like Business, Economics, Mathematics, and Physics where tenure is important.
(Indeed, I paraphrase Paul Krugman’s short post, not about Sydney or tenure, in this short post about Sydney)
May
7
The ‘bite us in the bum’ budget
Stephen King | 3 Comments
It looks like years of simplified debate in Australia on macroeconomic policy are about to come back and, in the colloquial, bite us in the bum. The ‘surplus good, deficit bad’ mantra that has been embraced by both sides of politics in Australia has probably been a useful device to control government spending over many years of solid economic growth. It has meant that government spending has been well controlled in the good times and has left Australia with relatively little public debt.
But rhetoric for the good times does not apply to the bad times – or at least the mixed times. As the eastern state capitals sink into economic gloom the Federal government is about to release the Mother Of All Budgets – an attempt to get the Federal budget back into surplus (or at least appear that way) regardless of the economic consequences.
It makes no sense to be having tightening fiscal policy at the same time as we are easing monetary policy. And it makes no sense to try to use monetary policy (a country-wide economic instrument) to deal with a two- or three-speed economy that needs targeted assistance to some areas and not other areas of Australia. Whether you think that Australia is in a period of temporary dislocation as we move to a long-term mining future or you think the mining boom is temporary and the economic shocks need smoothing, it doesn’t matter. Both views would back government policy to ease the short-term pain. A surplus-at-all-costs budget will not do that.
(Footnote – some numbers on public debt to GDP are here. The ‘ordering and relative magnitude’ seem about right compared to other data on the internet but the actual numbers vary greatly depending on what is included and excluded. But any list has Australia close to the bottom of the OECD.)
May
3
The death of refereed journals may be exaggerated.
Stephen King | 9 Comments
There is growing move against overpriced refereed academic journals. For example, see Stephen Matchett of the Australian here. And the economics discipline is a great example of both the failure of refereed journals and why their imminent death is exaggerated. Read more
May
2
(cross-posted from Troppo)
Interest rates in Australia have just been reduced by 0.5% in the hope that this will stimulate the economy. Will it work? Uncertain. But will politicians say it will work in the coming federal budget? Almost undoubtedly.
Perhaps displays of optimism are not such a bad thing, even if they are unwarranted.
In a study that just came out, we (myself, David Johnston at Monash and Gigi Foster at UNSW) found that optimistic expectations are key to making people happy with their lot in life. People are much less affected by regret than previously thought, nor do they tell themselves things will be bad in the future so that the present will be a pleasant surprise: people systematically over-estimate how rosy the future should be and this is crucial for their well-being.
Our study, of which the working paper version is here and the on-line article is here (for those with access) has the following highlights:
- In a sample of over 10,000 Australians followed for 9 years (the HILDA), it turns out that people’s expected future health has about 1/6th the effect on current happiness as their actual current health, with any difference between the health that was expected and that eventuated having very little effect.
- Future imagined health was more important to Australians over 35 and to women than to men and those under 35, for whom future imagined health was not important for happiness.
- As a result, we concur with the medical literature that has long argued that hope is important in itself for health, as witnessed by the strong placebo effect. In the medical literature hope has now become the default standard for new medicines in that new medicines have to be better than placebos if they are deemed to be of real use. Our advise is also to err on the side of optimism whenever possible.
Now, to classically trained economists, the fact that hope itself is a consumption good quite apart from realised consumption may be surprising, but in the reality of economic policy the big lesson from this kind of finding has been incorporated long ago: always pretend the economy will keep going strong or will soon improve unless there are really strong indications to the contrary. Hang on to see many an overly optimistic statement in the Federal budget next week …. and rightly so.
For more information on the study, see here.