So it appears that broadcasters have worked out that to compete with DVRs but have ads you need to have on-demand programming but without the ability to skip ads (NYT). The technology is basically a cable box that allows you to watch programs when you want (so you can time shift) but that wont allow you to skip ads. It is basically what they wanted Tivo to be but could never get that as people like to record to skip boring bits of programs as well.

What this will do will cut in to the DVR market for people who time shift shows they ‘must see’ but otherwise casually watch TV. But for those people who really hate ads, this will not be very appealing except that it will bring down DVR prices.

But the question I have is this: if this is such a good idea, why not put ads on iTunes TV programs, disable fast forwarding on those programs, and offer them for free? Sure, there are differences in the technology (e.g., ease of watching on a normal TV) and local advertising is impacted but commercially what is the big deal?

Legality of locked iPhone in Australia?

News reports today that network locking of Apple’s iPhone might be illegal in Australia. That surprised me but the newspaper cited the following:

“The iPhone is breaking new ground in using technology to restrict customer’s choice in technology markets,” said Queensland University of Technology (QUT) law researcher Dale Clapperton.

The finding comes from an analysis of the iPhone under Australia’s competition laws by Dr Clapperton and fellow QUT law expert Professor Stephen Corones, published in the QUT Law and Justice Journal.

So I looked up the article (click here for it). And right in the abstract it said:

The new Apple iPhone contains technological locks which tie the iPhone to the mobile telephony services of a particular third-party mobile carrier, a new development in technological tying, and much more likely to be unlawful in Australia.

“More likely than what?” Apparently, the iPod and tying to the iTunes Music Store. So much for concerns about the iPhone’s legality. The site should have said: “little concern about iPhone’s legality.”

What the Clapperton-Corones article argues is that there might be an economic issue with locking (not a legal one):

Where the carrier has not subsidised the cost of the phone, there seems to be no legitimate pro-competitive justification for locking the phone to the services of that carrier, especially where that locking is permanent and not just for the duration of the initial contract.

Well, the jury is out on that piece of economic analysis. All of the current intelligence about the iPhone suggests that carriers are subsidising its cost and paying Apple some revenue share. What the authors are confusing that with are phone subsidies to consumers — although these are recovered through network charges so the subsidy is largely an illusion.

The only serious legal issue might come in relation to Third Line Forcing which says that one company cannot sell a product that makes it a condition of sale that the consumer purchase a product from another company. However, Apple need only sell the iPhone through a carrier’s retailers and it is likely to be fine. In any case, it can obtain permission from the ACCC for any arrangement it might propose.

The article indicates that there might be other anti-competitive issues associated with the iPhone. But someone would have to ask if this arrangement were to lessen competition in any market. There are other smart-phones so Apple isn’t a monopolist there. There is lots of network competition and in the US the iPhone hasn’t given AT&T something that has weakened competition in mobile competition.

Personally, I think locking the iPhone is a poor business decision but it doesn’t look like it is one that will violate competition laws.

Economics at the movies

Apparently, the Dallas Fed in the US is having an essay competition for high school students with the title “Economics at the movies.” OK, let me add some pointers for this interested: for game theory, look to House of Games and, the classic, The Princess Bride (both from 1987). You can also look for real estate economics in the Superman movies or some poor commercialisation strategy in Mission Impossible II.

Baby bonus dues

I guess the irony would not be lost on anyone of 2000 jobs to be cut at Centrelink (the social security office). Images of people walking from behind the counter to stand in a queue in front of it come to mind. But in actuality, with a booming economy, it should be a positive sign if Centrelink’s activities are contracting.

But the broader issues is that the government faces big challenges in its attempt to reduce public service costs. In that respect, some policies enacted by the previous government stand out as sore thumbs. I speak, of course, of the baby bonus. That payment already costs around $1 billion per year and in July is set to add several hundred million more to the bill as it jumps to $5,000. And for what? At its best, the baby bonus was just a vote buying exercise and a failed one at that. At its worst, it is an attempt to increase the population; something that is misplaced because there is a cheaper alternative — immigration. (On this point, I note that the IPA’s Chris Berg is in agreement).

The Rudd government has, thusfar, been silent on the issue of the baby bonus. Prior to the election, they were set on keeping it but it never was a core promise for them. I must admit that I can’t for the life of me imagine a Labor government slashing public sector jobs while at the same time increasing the baby bonus. Leave aside the obvious disruption that is going to occur in maternity hospitals in the last week of June and first week of July, the increment to the baby bonus is unjustified. My hope is that it will be frozen in the May budget.

But in reality, we need to be rid of it. The review of changes to maternity and paternity leave will provide an obvious opportunity. Let’s hope the government takes advantage of it.

How to act quickly on emissions

The Garnaut report has strongly recommended fast action on climate change. This stands in contrast to usual approaches that are strong on the need for action but cautious on when that action should take place; arguing that there is value in waiting for more information and to ‘get the policy parameters’ right. It seems that, for all sorts of reasons that I won’t go into here, time has run out.

John Quiggin and I wrote a paper last year that addressed policy implementation. In it, we argued that there was no reason not to move quickly in some sectors. We singled out automotive because, even if you don’t worry about climate change, we need to get the prices right there anyway. And we also targeted electricity because grafting emissions trading onto the existing market would make sense and you would begin to get investment in a critical sector heading in the right direction, right now. After reading through the interim Garnaut report, I am more convinced than ever that we should begin tackling climate change sector by sector with policies that can be integrated at a later date.


You students out there, see, even our politicians get hot and sweaty about plain old economic terms. Yesterday’s hot bed was the ‘non-accelerating inflation rate of unemployment’ or NAIRU. For the uninitiated, let me quote from my favourite economics textbook.

[The NAIRU] is the level of unemployment that does not result in increases in the inflation rate.

In theory, the Reserve Bank can go to town in squeezing the money supply to fight inflation and it won’t effect the NAIRU but it will impact on short-term unemployment. And so what is the level of the NAIRU at the moment? Well, inflation is accelerating, so it is higher than our current unemployment rate.

But there is something very important here: the NAIRU does not change with current discretionary policy variables. It relates to structural factors. So when Malcolm Turnbull asks this question:

“If the treasurer regards that (NAIRU) rate to be higher than 4.1 per cent, how many Australian jobs does he believe should be sacrificed to achieve it?”

a possible answer could be: none; at least if we are patient. Not that it is easy to do, but the government could try and put in place programs that will eventually reduce the NAIRU. Indeed, it appears to have fallen since I was an economics student and gets lower with every edition of my favourite textbook. The problem is that until that is done, our inflation rate will stay high and maybe get higher if unemployment stays down. Near as I can tell, that is what the Treasurer actually said.

The one thing we can do with the NAIRU is probably put a figure on it (or at least a range) by looking at how fast inflation has accelerated and decelerated in the past. That is why the concept is useful.

‘Smuggled’ iPhones

The New York Times talks about the iPhone ‘smuggling racket’. Apparently, it is estimated that 1.3 million iPhones have left the US and are being used on non-approved networks. This is a fair chunk of the 3.7 million Apple have said they sold last year.

This is regarded as some sort of blow to Apple.

For Apple, the sale of iPhones to people who ship them to China is a source of revenue. But the company is still losing out, because its exclusive deals with phone service providers bring in revenue after the phone is sold. If the phones were activated in the United States, Apple would receive as much as $120 a year per user from AT&T, analysts say.

Exactly, what is the cost again? “If they were activated in the US.” The point is that they won’t and never will be activated in the US. This can’t be a loss to Apple. The loss is that if it wants to do deals with mobile carriers internationally like it did with AT&T, it may face some push-back because the lead users there are already using.

Apple have clearly stuffed up here and it is this: they could have offered an unlocked phone — potentially at double the current price — and have achieved lots of sales. Every other Apple product gets sold around the world instantly and their global marketing campaigns work. They mis-judged the iPhone, got stuck in what must be some horrific contracts that didn’t take into account a ‘success contingency.’ We are all paying the price.

Moreover, what sort of ‘smuggling’ is this anyway? At best, it is a ‘grey’ market as Luke Froeb argues but there is no sense in which international customers are cheating Apple by buying a product not available in their countries.

The Logic of Life

I must admit that when I picked up Tim Harford’s latest book, The Logic of Life, I wondered whether there was really room for another popular economics book. In the wake of the success of Freakonomics, we had seen Tyler Cowen’s self-help book, Steve Landsburg’s ode to the counter-intuitive, Robert Frank’s collection of student analyses, Ian Ayres Supercrunchers, and even Tim Harford’s first book, The Undercover Economist. There apparently is even going to be a book on economics and parenting. Was there room for something new?

Well, it turns out that there was. The Logic of Life picks up where Freakonomics left off — that is, recent research into interest economic phenomena that does not come from the ‘lab’ of Steve Levitt. It is a series of essays around some themes including poker tournaments, divorce, workplace politics, neighbourhood effects, racism, geographic agglomeration, voting and long-term economic growth. But the research documented is hardly the dry stuff that you might normally expect. Instead, it covers the interesting — also known as ‘freaky’ — topics that have caused economics to adorn the newspapers and blogs with surprising regularity.

In that respect, there is nothing new in this book. What is new is how well exposited it is. Moreover, there is nothing ecclectic about Harford’s choice of topics. It is exactly what we would students to be reading to understand the power of economics using examples of recent research. The research is given context and it is explained in a way that has the important quailty of ‘not being wrong’ and being appropriately qualified. With this book, Tim Harford has established himself as perhaps the world’s leading economic journalist. If you read one economics book this year among the stack recently produced, this would be it.

But there is another thing that comes from this book. The research documented shows an interesting trend. Chicago economists coming up with theories (in some cases decades ago) that are being tested by younger East Coast economists. What has caused this in the sociology of academic economics is an interesting question that i have no answer for.

Finally, a reminder to all Melbourne residents out there that Tim Harford will be speaking at MBS in just a couple of weeks time. Click here to register.

Family equity mortgages

In his Dear Economist column this week, Tim Harford counsels someone who let his sister take a 30 percent share of his mortgage but now wants to have more than 70 percent of the equity. Harford correctly thinks that that is a bit rich as he got to actually live in the house. If anything, the equity should flow the other way.

What was interesting was why they entered into this arrangement. Apparently, his sister wanted a stake in the property market as a hedge for some future full entry into it; say, when her income rose further. Of course, buying a share of a specific property is risky in this regard. Better to buy some share of a residential property fund. In Australia, such funds exist now thanks to Rismark of which I am an advisor. That way you can access the property market as a hedge and avoid the family disputes that require public advice from economists.

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