Competition on the islands

There are some famous models in economics based on island economies. Usually, that is a metaphor for issues of transportation costs and restrictions on the flow of goods and information. You may not have realised this but there are islands in the real world. Between England and France there are several known as the ‘Channel Islands.’ I learned this week that they are not part of the United Kingdom but operate under similar laws and monarchy but are somewhat independent. So independent that each island has its own competition authority.

As it turns out, the Deputy Head of the Jersey Competition Authority is an Australian by the name of Andrew Riseley. I met Andrew at a conference this week where he disabused me of my ignorance regarding the scope of competition issues that they face there on Jersey. In fact, a look at their active issues and it could read just like the ACCC. From fuel to post to reducing the costs of switching your broadband provider (and yes, if Jersey can have choice surely Australia can have that too).

Now, as with all such things, I believe that the criteria imposed by Norm from Cheers applies: the things that will get attention and scrutiny are anything that could result in a change in the price of beer. So Andrew’s hot issue at the moment is the proposed acquisition by the Liberation Pub Company of one of the main wholesale alcoholic beverage distributors on Jersey. He told me that that acquisition as already been moved to their Phase Two process which I take to mean that Andrew will spend more time on it. I think competition authorities around the world dealing with the politics of that industry will be watching island developments closely.

Gender and Competition

My AFR op-ed today is on gender and competition, writing up a series of recent research papers. It would’ve been too cumbersome to mention all the authors, but you’ll find the studies hyperlinked if you’d like to read the original research. Full text over the fold. And of course, please remember that authors don’t choose their headlines.

Continue reading “Gender and Competition”

Broken record on bank switching

… both sounding like one and government policy. Usual scenario: (1) RBA changes interest rates, (2) banks immediate react but don’t do the same thing — almost always passing on less or, apparently, taking more — (3) Treasurer says consumers should use their feet and switch banks; (4) consumers work out that is costly; (5) journalists call me to so I can be quoted saying the same thing; (6) nothing gets done. Today’s step (5) journalist is Peter Martin.

The problem with bank switching costs is that to minimise them likely requires all banks to implement common standards, technologies and maybe even some new financial products that would enable this. The latter would be, say, mortgage products whereby there is an underlying secured stream of income from the mortgage but when a customer switches, they switch the front end or residual holder of the variable stream of returns as interest rates vary. In each case, it is likely to be better if either (i) the government mandates a right to switch, thereby, forcing banks to work something out or (ii) provides that means of switching themselves. The latter is a structural intervention into the market, not unlike the competition-enhancing policy behind the NBN, that will allow switching to be cheaply implemented. The costs could then be recovered through, say, stamp duty on the loans. Wow, stamp duty actually used to provide something related to the industry rather than a revenue grab from government. How radical is that?

Special interests win out in books

Suppose that you had a reform that potentially would lead to consumer benefits of around half a billion per year that might stand to harm some 10,000 Australians with 10 percent of that total. So that interest group gets $5,000 each while costing the rest of us $450m. Seems like a no brainer especially if you had careful study, noted that these numbers were conservative and allowed a year of public submission and discussion. You might say the evidence was gathered.

Well, that wasn’t enough for the Rudd Government who completely ignored those calculations. They rejected the Productivity Commission’s analysis that parallel import restrictions on books be removed. They claimed, contrary to all evidence, that:

Australian book printing and publishing is under strong competitive pressure from international online booksellers such as Amazon and The Book Depository and the Government has formed the view that that this pressure is likely to intensify.

But think about that. If competition is strong, then those 10,000 Australian authors are not protected by parallel import laws. So all we have is the costs of enforcing it. Why some of them and their publishers are celebrating today, I don’t know. Actually, I do. They know they got price support and will be a protected industry for some time yet.

What is most disappointing is that it adds another chink in the Government as evidence-based sensible policy-maker and towards them being interest group protector. We have seen it in the CPRS and we are seeing it in books. The book interest group is polluting the economy with high prices just so they can scrape a small amount for themselves. What next?

PS. The half billion comes from total books sales ($2.5b) subtracting non-trade books (40%) and taking 35% of that (the low end premium charged over books sold overseas). The 10,000 represented the top end calculation of authors in Australia (and they don’t produce books each year) and the 10% is their likely share of trade book sales assuming neither publishers nor booksellers get a cut.

Telstra’s Formidable Opponent

Stephen Colbert has a bit called ‘formidable opponent’ where he wants a debate and the only person worthy of debating him is, himself. That was too remote a reference for my piece in The Age today but that is how I see the Government in its game against Telstra — the Government has acted like Telstra has previously. The article is over the fold. Continue reading “Telstra’s Formidable Opponent”

The Parallel Importing of Books

IPRIA & CMCL ran a seminar on the parallel importation of books yesterday. I’ve uploaded the videos to We thank the presenters for permission to podcast their views (Q&A with the audience is omitted). Joshua had earlier commented on the topic of parallel imports on this blog. My personal view is that as we move increasingly towards digital books and other online content, publishers and authors should be proactive in adapting. The real strategic challenge is not the parallel importation of books, nor is it the Amazon Kindle which includes export restrictions and can only be sold in the US. When faced with artificially high prices for books (as well as the total unavailability of particular books in the domestic market), customers will simply resort to downloading unlocked pdf versions of those books. It happened with music and movies in the past, and I suspect the same will happen with books as better quality readers emerge for reading digital content. I make no comment on the morality of such downloading, but want to simply point out that publishers should work toward providing affordable, legal alternatives. Authors need to worry less that their cultural impact will be affected. If push comes to shove, they may be better off selling books as iTunes podcasts, or through upcoming digital merchants like safaribooks. Or they could just write blogs instead. Continue reading “The Parallel Importing of Books”

Finally, the breakup we had to have

How long have we waited for the Federal Government to get serious on Telstra and separation? We had Labor fail to do this when deregulating telecommunications and the Coalition pass up opportunities to do something when privatising the rest of Telstra. Now, the Government looks set to do something.

Telstra Corporation will be forced to split its retail and wholesale businesses or risk losing access to wireless broadband under new reforms proposed by the federal government.

Under the plans, the government will force Telstra to conduct its network operations and wholesale functions at arm’s length from the rest of the company if it does not voluntarily do so through an undertaking to the Australian Competition and Consumer Commission (ACCC).

Hmm, not quite structural separation but the spectrum threat is interesting.

Telstra would also be prevented from acquiring additional spectrum for advanced wireless broadband while it remains vertically integrated, owns a hybrid fibre coaxial cable network and has an interest in Foxtel.

Some of us have been saying this for some time.

This direction is interesting but how this will play out is somewhat uncertain. Will Telstra do things voluntarily on their own terms or fight to the death and drag it all out. For now, we can applaud the solid change in Government direction. As Minister Conroy said: “The measures in this legislation will finally correct the mistakes of the past.” Amen to that.