The Upcoming Struggle with Netflix

Millions of people in the world today are subscribed to Netflix, a widespread streaming service.  Its distribution model gives consumers direct access to a vast library of licensed films and television series, as well as its own Netflix originals, for just a small monthly fee. They have seen a large increase of users (network effects), and some people identify Netflix’s dominance as a monopoly. 

However, their growth has begun to stall. Other media players, such as Disney, NBC Universal, Warner Media, Comcast, and AT&T will soon be launching their own streaming services, and competition will rise. They may lose rights to some of the popular TV shows, like “Friends” (AT&T) and “The Office” (Comcast). Netflix will have to create their own originals to entice their consumers to stay, but they will likely have to increase the price of the subscription plans if they plan to invest in original films.

The ability for consumers to subscribe and unsubscribe whenever they want is known as “churning”. It is necessary for competing streaming services to have the ability to serve consumers in an attractive price and value fashion. 

Will Netflix be able to keep up? If their original content doesn’t pay off, and if Netflix does not have a large licensed content library to rely on, they might see a drastic decrease in subscribers in the coming years. 

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Convenience vs Competition

In May of 1911, The Supreme Court ordered that Standard Oil must separate since they were severely harming competition by dominating the industry. This made it harder for the competition to flourish in the economy. If this was the reason that Standard Oil was broken up in 1911, why didn't the FTC decide to do this to Google?

As discussed in class, Google displays loads of content in many different areas. However, it wasn't always like this. Google took content based on popularly visited websites and displayed them directly after the search deterring people from visiting other links. The Case Against Google article brings up the fact that Google displays forecasts after a weather search and reviews when searching for a restaurant. Doing this means that users just make a search on Google, and their results are displayed immediately.

Of course, this harms the competition since users no longer need to visit other sites if Google displays the results on its own search engine. If the government decided to break down Standard Oil for harming the competition, why didn't they do this for Google?

The way I interpret it, Google is giving access to the data of separate websites at a more convenient level. There are separate websites and separate industries that are providing the information displayed on Google. However, the question remains: is this harmful to the competition? Or helpful for making exposing users to other links and industries?

For example, when searching up a fact or a question, Google typically provides a box of relevant information and the link at which the information was provided. If the paragraph only answered part of the question or more information was needed the link is provided. This is extremely convenient and user-friendly but it could be argued that it is stopping the actual links from being visited. So which is more important? Convenience at the leisure of the user or convenience at the expense of the competition?

Source:
https://learning.blogs.nytimes.com/2012/05/15/may-15-1911-supreme-court-orders-standard-oil-to-be-broken-up/
https://www.nytimes.com/2018/02/20/magazine/the-case-against-google.html

Monopolies & Oligopoly industries in China

In China, many of the traditional industries have being monopolies by Chinese government. Such industries like, telecommunication, bus, railroad, gasoline, electricity, hospital, etc. The Price Law enacted in 1997 explicitly allows the government to control prices in certain important sectors, including natural resources, sectors characterized by natural monopolies, and public utilities. While the number of controlled prices seems small, the significance of price control in China nowadays is definitely greater than that number would suggest.




Although,  the Chinese government is monopolizing many traditional industries. An Internet oligopoly is forming among Chinese Internet enterprises, with Baidu Inc, Tencent Holdings, Ltd, and Alibaba Holding Group, Ltd, taking up 70 percent of the total market value of all listed Internet companies in China. The three Internet giants hold stable monopolized positions in the sectors of search engines, instant messaging and e-commerce. Tencent took up 76.56 percent of the market share of instant messaging, with 636.6 million active accounts. Baidu took 72.3 percent of the market shares of search engines, while Alibaba took up 54.39 percent of the Business to Business(B2B) business. The monopolizing also makes many American communication companies is hard to enter the Chinese market, even if there is no block from the Chinese government.

Lessons From Microsoft's Antitrust Case

In 1998, the Department of Justice filed antitrust charges against Microsoft. The suit was filed soon after one of Microsoft's competitors, Netscape, collapsed, and was supposed to determine whether or not Microsoft's recent actions leading up to that collapse were monopolistic.

To understand what was happening at the time and why it is important now, we must first define what antitrust is, or more specifically: antitrust laws. These laws prohibit actions such as price-fixing, anti-competitive mergers, and any actions meant to gain to maintain a monopoly. So what happened with Microsoft?

Microsoft was accused of "making it difficult for consumers to install competing software on computers operated by Windows." In spite of public support for Microsoft, along with some debate surrounding whether or not charges should have ever been brought on in the first place, Microsoft lost and the court ruled that the company would have to divide in half into two smaller companies. However, during the appeals process, this was reversed, and instead Microsoft was required to "give the top 20 computer makers identical contract terms for licensing Windows, and gave computer makers greater freedom to promote non-Microsoft products."

So why is this case still important today? With current tech giants such as Google, Apple, Facebook, and Amazon, there are likely to be more investigations into antitrust issues in the near future. One question may be: how necessary are these investigations? As we currently are learning about Google, many believe that the government should just let these companies run their courses, since while the government mostly failed to completely bring down Microsoft, the company was eventually weakened by the addition of regular competition from new companies like Google. If this is the case, should we wait for another big thing to come around and take down the current companies? Or are there actions the government needs to take much sooner than that could happen?

Either way, current major tech companies can learn from Microsoft's case, and the mistakes in it. One article has pieces of advice such as: "Don't deny the obvious" and "Assume everything will be made public." If it comes down to it, new large tech companies will have the background from Microsoft's original tech antitrust case to look back on and to learn from. But how necessary may these new cases be? If a huge, fundamental company like Google lost its case, what would the effects be? Is Larry Page right in saying that Google won't last any longer than it "deserves to," or will it fight to hold onto power using possibly illegitimate tactics?




Sources:
1. https://www.investopedia.com/ask/answers/08/microsoft-antitrust.asp
2. https://www.latimes.com/business/la-fi-tn-microsoft-facebook-google-amazon-apple-20190620-story.html

The great adidas puma schism- Sneaker Wars

A book titled, Sneaker Wars, tells the tale of the great Puma Adidas schism. The book tells the story of the family feud that led to the creation of Adidas and Puma. Rudi and Adi Dassler were the brothers behind the shoe factory, Gebrüder Dassler, located in Germany. The company was owned and operated by the family who made the country's best sports shoes. They profited from the Nazi's love for sports. The company reached maximum success after Jesse Owens wore their shoes in the 1936 Berlin Olympics.

Despite the success, the brothers could not get along. They have different personalities and would constantly disagree with each other. They disagreed about everything from the future of the company, politics to one another's choice in wives. Both were associated with the nazi party and when the party fell and they got caught they tried to place the blame on each other.  In the late 1940's Rudolf left and set up a rival shop across the river, while Adi remained at the initial company. Adi renamed his company Adidas and in 1948 Rudolf registered his company and named it Puma.

Today Puma and Adidas, as well as many other sport shoe brands such as Nike and reebok, are very popular. These competing athletic shoe brands are a good example of a loose oligopoly. The products are somewhat standardized in the sense that what is sold is athletic shoes as well as athletic wear however the products themselves are differentiated. The shoes have different designs, colors, patterns, and each shoe is made with a different purpose. Both companies might sell basketball shoes but their basketball shoes different. One might be purple and have extra ankle support while the other is pink and has more arch support. The market is also super hard to enter because it is already dominated by a few brands. Game theory can also be applied to the market because companies are constantly coming out with new styles and others are having to respond and predict what the companies are going to do.

The athletic shoe market is a very competitive and difficult industry to be in and it will be interesting to see which brands dominate in the future.

https://www.newsweek.com/history-adidas-and-puma-86373

Mutually Assured Destruction and Game Theory

As World War 2 ended and the Cold War began, the USA and Soviet Russia started building up their nuclear arsenals to compete with the other in a strategy known as Mutually Assured Destruction (MAD).  Each government decided that the only way to prevent their opponent from nuking their cities was to increase their stockpile of nuclear missiles, ensuring that if their opponent carried out a first strike, they would be able to threaten retaliation.  Essentially, MAD was a modified Prisoner's Dilemma with the price of failure being the destruction of modern civilization.


Much like the classical Prisoner's Dilemma shown above, MAD has 4 possible choices.  However, the four outcomes are altered: Country A and B do nothing and build up arms, Country A nukes B and B doesn't retaliate, Country B nukes A and A doesn't retaliate, or one country nukes the other and their victim retaliates.

The first choice is obviously ideal, and was thankfully the status quo for the entirety of the Cold War.  However, as some of the world's top game theorists at US think tank RAND Corporation determined, the most rational decision for each country was to carry out a first strike.  Once a first strike from Russia has already destroyed much of the US, the US doesn't bring the country back to life by launching back.  The victim has no incentive to carry out their threats to retaliate if they were ever nuked, meaning that their threats are only a bluff.  Knowing this, the Russians should take the initiative and strike first, calling the US's bluff.  Since the US is in the same position, they too should start a first strike to ensure that they're not nuked.  What this leads to is both countries realizing that the most rational decision is to strike first, unless their opponent has demonstrated their willingness to return fire, the worst possible outcome.  Only careful diplomacy during tense moments like the Cuban Missile Crisis prevented nuclear annihilation.  If both countries had not become locked in Nash equilibrium, where neither country had an incentive to disarm or nuke the other and instead continued to build up their stockpiles, the world today might be struggling to recover from a nuclear war started and ended decades ago.







http://www.davidmeyercreations.com/mysteries-of-history/did-game-theory-save-mankind/
https://science.howstuffworks.com/game-theory5.htm
https://blogs.cornell.edu/info2040/2016/09/09/mutually-assured-destruction-game-theory-and-the-cold-war/
https://nationalinterest.org/blog/buzz/russias-dead-hand-nuclear-doomsday-weapon-back-38492

Collusion: The Smartphone Industry

In 2018, AT&T, Verizon, and the G.S.M.A. (a group that sets mobile industry standards) were investigated by the Justice Department for collusion. Recently, a technology had been developed called eSIM which allowed users to easily switch phone carriers without switching their SIM card. It was found that these companies had been working to thwart the development of this technology.

If this new eSIM technology became widespread, it could mean consumers could much more easily switch to new carriers who offered more competitive prices than Verizon and AT&T who at the time, controlled ~70% of the wireless subscriptions in the United States. By locking a customers SIM card to their company, it would mean that customer would most likely stay a long time customer of that company, which in turn would most likely lead Verizon and AT&T to control an even larger amount of the market.

However, by not allowing customers to switch to another provider even if they had better prices, it would mean competition in the market would die out. “The actions would limit choice for consumers and harm competition,” said Ferras Vinh, a policy expert for the Center for Democracy and Technology. In in oligopoly, companies can sometimes subconsciously agree on a situation that would benefit them both, however in this instance, it was clear collusion. It would result in efficiency for both companies, but also be anticompetative, hurting consumers and other producers.

Nowadays, although SIM cards are still locked to certain carriers, eSIMs are becoming widespread in phones such as the Google Pixels, Apple iPhones and Watches, and Microsoft Surfaces.

Sources:
https://www.nytimes.com/2018/04/20/technology/att-verizon-investigate-esim.html
https://www.zdnet.com/article/doj-probing-at-t-verizon-and-regulatory-body-for-esim-collusion/

The Golden Balls: Game Theory

The Golden Balls is a pretty standard UK game show. It has a traditional set, a brightly lit stage, large props, and a vicious, competitive game played for large amounts of money. The game is set up based on the Prisoner's Dilemma. Two contestants each are presented with two golden balls. Inside one ball, the word "steal" is written. Inside the other, "split." The two contestants each choose a ball and reveal it at the same time. If both contestants "share," they split 100,000 pounds. If one chooses "steal" and the other chooses "split," the stealer walks away with all of the money and a guilty conscience. If both people choose "steal," they both lose it all.

Here's the catch though. Unlike in the traditional Prisoner's Dilemma, the contestants are allowed to talk with each other before their choice. In fact, they are given an indefinite amount of time. They can argue and plead with each other for as long as they want until they both agree to make the final decision. Usually, this just results in the two people promising over and over to share, though there are countless examples of shameless backstabs and betrayals by people who would otherwise be upstanding. This is because operating from the assumption that the other person could choose either option, you stand a better chance of making money if you choose steal.

Obviously, this is a vicious game, with no really secure choice. However, one time, a contestant named Nick decided to upend the entire system. Instead of pleading and pleading for a mutual "share" agreement, Nick led the conversation from the very start, with a new strategy. This is what he told the other contestant as soon as the deliberation period began: "I want you to trust me. 100 percent I am going to pick the steal ball. I want you to choose split, and I promise you that I will split the money with you." This decision completely rearranges the profit opportunities for the other contestant. If he operates off of the base assumption that his opponent automatically chooses to steal, he has no chance of stealing himself. But if he chooses to share and let Nick steal from him, he has a certain chance of making money, on the hope that Nick is honest and will truly just hand him the money after the show ends.

This argument lasted for an hour, where Nick stood steadfastly certain at his steal choice, and the other contestant, flustered, could not find a better way to operate, so he gave up. They agreed to make the final decision. The big reveal came. As expected, the second competitor had chosen "share". But when Nick revealed his ball, it also read "share." Both contestants walked away with half of the money, one happy and content with himself, and the other still confused and a little bit angry, but with a wallet 50,000£ heavier.

Sources:
https://mindyourdecisions.com/blog/2012/04/24/how-to-beat-the-prisoners-dilemma-in-the-tv-game-show-golden-balls/
https://blogs.cornell.edu/info2040/2012/09/21/split-or-steal-an-analysis-using-game-theory/

Flight pricing

Airlines have something similar to a discriminating monopoly. One airline controls one flight at a specific time to a specific location. As a result, they are able to price their flight for maximum profit (within the range of their competitors, of course).

Airlines use pricing algorithms that take into account several factors including past bookings, remaining capacity, average demand for certain routes and the probability of selling more seats later. There are two types of flyers: leisure and business. Leisure tickets often initially start at high prices because people book them several months out. Airlines adjust the price according to demand and supply in order to maximize their profit. Business flights are often initially sold cheaper to fill up a minimum number of seats. As the flight date approaches, prices increase due to a decrease in elasticity of the consumer's demand. In this way, even if the seats are similar, airlines are discriminating in their pricing to reflect consumer demand.

Another way in which airlines demonstrate the principles of a discriminating monopoly is in having multiple classes such as first-class, business, and economy. The people who are willing to pay more for better amenities do and the people who are not do not.

Rather than focusing on making enough money to pay for plane maintenance, fuel, and other resources, airlines price their tickets as high as consumers are willing to pay. As a result, consumers have turned to sites such as Skiplagged which predict the lowest price a ticket will reach and notify the consumer when that price is reached.

Sources:
https://www.investopedia.com/terms/d/discriminating-monopoly.asp
https://www.cnbc.com/2018/08/03/how-do-airlines-price-seat-tickets.html

Sean Parker

As we saw in the documentary, “Downloaded”, Sean Parker and Shawn Fanning eventually split as partners after Napster was shut down. Sean Parker became particularly successful after the shutdown with a network of $2.7 billion. Even without a college degree, he is one of the most successful self-made billionaires. 

Parker was born in Herndon, Virginia and struggled with asthma throughout most of his childhood. His father, a U.S. government oceanographer started to teach him computer programming at the age of 7. When Parker was 15, the FBI became interested in him and he had to do community service with other teenage hackers. He also gained a CIA internship from getting one of the top honors at a computer science fair. After Napster shut down, Parker was left broke and forced to start over in the business world. 

He shifted from an interest in music to the power of social networking. He launched Plaxo, an online address book and soon after discovered Facebook. Parker was able to meet with Mark Zuckerburg and then became Facebook’s founding president. He then became interested in Spotify, originally a Swedish music platform, and brought it to the US. He was apart of the Board of Directors until 2017. 

Other than investing in other companies, Parker also launched his own foundation in 2015 with $600 million. In 2016, his foundation granted $250 million to establish the Parker Institute for Cancer Immunotherapy. He also founded the Sean N. Parker Center for Allergy and Asthma Research in 2014.

Sources: 

https://www.forbes.com/profile/sean-parker/#85b0a6c4b737

https://www.biography.com/business-figure/sean-parker

https://amp.businessinsider.com/images/55ba9a48371d22723a8b9424-750-563.jpg

https://content.fortune.com/wp-content/uploads/2019/09/sean-parker-weta-peter-jackson-e1568147823275.jpg

Spotify: The Superior Streaming Service

Ever since the digitization of the music industry in the late 1990's and early 2000's, especially after the failure of peer-to-peer sharing services like Napster, music streaming music has risen to the top. Spotify, Pandora, SoundCloud, and the fairly recent Apple Music are some of the most popular services. These services can be free, but will usually have advertisements playing to make up for not generating revenue from a user. Otherwise, many have a paid subscription option, which involves a monthly payment for ad-free listening among other benefits. As a consumer, I have had the opportunity to try different services, and for me, one sticks out above the others: Spotify.

What's important to me, as somebody who streams music? Money may be on the mind of most consumers. Companies like Napster found success (at least in the beginning) somewhat because of how appealing it being free was. I am a subscriber to Spotify Premium, specifically the family plan which connects my dad, my sister and I, and has a lower cost than if we all paid for separate single-user plans. Luckily for me, my dad doesn't make me pay any of this cost. However, that is not the average user's situation, so let's assume the typical Spotify Premium, no-family-plan-subscriber is paying the $9.99 per month fee. They are paying for the ability to listen to whatever they want whenever they want, and receive personalized playlists and data summary. A non-Premium user has a limited number of times they can skip songs and must listen to advertisements in between songs. Even if I were paying for my own subscription, I would still pay the $10. It's important to me that I can play the music I want to, since that is why I'm streaming music at all. Some services only require free users to listen to the ads, so Spotify limiting skips and offering Premium benefits help convince consumers to subscribe.

What does Spotify have that other services don't offer? To me, it's the personalization. Spotify makes a Discover Weekly playlist for each user that recommends 30 new songs each week. You get an annual summary of what you listened to that year, there are playlists of songs you've had on repeat lately, four different "Your Daily Mix" playlists-- it's endless. I can't say that every user checks out all these playlists, in fact I've heard from other people that many don't, but I appreciate that they're there. Spotify also has a social component; you can follow your friends' accounts and listen to their playlists. Artists can make playlists for their fans to listen to as well. However, other services offer some of those features as well.

When comparing features and business models, these services can seem fairly similar. In terms of generating revenue, Spotify gets money from subscribers like myself, advertisements, and the collection and sale of user data. However, though some may argue streaming services have significant similarities, Spotify stands out and has succeeded in creating a brand-loyal consumer in me.

The Prisoner's Dilemma

The Prisoner's Dilemma is one of the most well-known concepts in modern game theory that involves strategic decision-making based on rational behavior. Essentially, two individuals face a situation and act in such a way that best protects themselves, but at the expense of the other person. As a result, the two parties do not reach the optimal outcome and instead end up in a worse state.

The key take-away that helps explain the prisoner's dilemma is that each individual always has the incentive to create a less than optimal outcome for themselves and the other person. It is easier to think of it as selfishness, though it is better defined through rational decision-making and incentives, especially in economics. People have the option of cooperating with the other, however, they choose not to.

One example of The Prisoner's Dilemma in economics is the Tragedy of the Commons. The situation in the case of the Tragedy of the Commons is that every individual has the incentive to consume a resource until it is completely depleted. The result is overconsumption, underinvestment, and the complete depletion of a resource.

The Tragedy of the Commons can be observed throughout history. One example is the collapse of the North Atlantic cod fisheries in 1993. Basically, there was overfishing of cod, which led to the complete depletion of codfish and therefore the collapse of the North Atlantic cod fisheries.

It seems that The Prisoner's Dilemma always has a negative or unfortunate outcome. Many likely question whether or not there is a positive outcome to The Prisoner's Dilemma. The answer is, it depends. In general, laws, rules, enforcement, and other actions such as these help one to escape The Prisoner's Dilemma because it alters their incentives. With altered incentives to better cooperate, individuals may be forced to cooperate or decide that it is for the better.

Sources:

• https://www.investopedia.com/terms/p/prisoners-dilemma.asp
• https://www.investopedia.com/terms/t/tragedy-of-the-commons.asp
• http://marinespecies.org/introduced/wiki/The_tragedy_of_the_commons:_Is_the_Newfoundland%27s_cod_crisis_a_good_example%3F

Thrifting

As a 17-year-old girl, I care about my appearance. More specifically, the clothes I wear. It’s tricky to be individualized and trendy at the same time. Like we learned from an earlier documentary that discussed “cool-hunting”, it’s hard to do this because once stores create a look to sell to the public because it’s trendy, it’s no longer as desirable because it’s found everywhere. The supply increases and the demand decreases–basic economics.

In an effort to create personalized styles, it has also become a trendy thing to go thrift shopping. Thrift stores resell a wide variety of second-hand items which makes the items cheaper, and unique since they are not being manufactured in huge factories. Stores like these become appealing to teenagers who have low sources of personal income and want to build their own image with vintage and unique pieces. It takes awhile to sift through the racks and racks of clothing but thrifting is very beneficial for the environment, and supports the economy.

Thrifting allows for those in lower-economic statuses to have access to clothes within reasonable prices. This helps the economy because instead of saving their money by not buying any clothes, they stimulate the economy by buying less expensive, second-hand clothes. Also, thrifting saves the environment greatly. Reusing material reduces the average American’s carbon footprint and makes a global impact. Donated clothes make their ways around the world to overseas places such as Africa. This promotes social business and economic business as it proves 17,000 jobs in the United States and 100,000 jobs in Africa.

The next time you feel like updating your wardrobe, feel good about visiting a thrift store for fun finds and fulfilling benefits.

Sources:

http://www.larryhollon.com/blog/2011/02/07/the-thrift-economy-four-ways-thrift-shopping-aids-social-business/

#YangGang2020

Although the title may be misleading, I am not going to get too political or try to persuade you to join the Yang Gang. 

As we know, Andrew Yang, the democratic candidate in the running for President, is a big proponent of UBI or Universal Basic Income. A form of social security, Andrew Yang's UBI plan allocates a monthly check for $1000 for every U.S. citizen over the age of 18. Yang calls this the "Freedom Dividend." With the rapid advancement of technology, Yang believes that it is imperative to adapt accordingly. Moreover, that, "by 2015, automation had already destroyed four million manufacturing jobs, and the smartest people in the world now predict that a third of all working Americans will lose their job to automation in the next 12 years." In other words, Yang believes that his Freedom Dividend is the correct first step towards protecting U.S. citizens, as careers, like those similar to truck driving, could easily be automated away. UBI would provide much-needed money to cover the basics for Americans while they transition into another job. 

Now, with UBI there are a lot of supporters and just as many detractors. Supporters argue that UBI will be good for the economy because suddenly families will have more money to spend and also reinvest into the economy. Other benefits include encouraging people to do work they are more passionately inclined towards, increasing bargaining power for workers, and improving labor market efficiency. In contrast, adversaries argue that giving cash handouts to every American will incentivize them to not hold jobs, lessening their work ethic. In other words, why won't people just stop working and wait for that nice 1k to come rolling in each month? Additionally, opponents are calling UBI socialism, and that's just not what 'Merica is about. 

Ultimately, it comes down to if UBI can feasibly work. Some countries outside the United States have implemented some version of UBI with inconclusive results. However, due to different cultures and the scale UBI was instituted at, we can only know if it will work in the U.S. if we implement it in the U.S. In conclusion, there are supporters on both sides, but if Zuck and Elon both have expressed some sort of support for such an idea, it must then be in our future!

https://www.yang2020.com/what-is-freedom-dividend-faq/

Monopolies: The College Board

In class, we learned about the characteristics of monopolies. For a pure monopoly, there is a sole seller, no close substitutes, the seller is the price maker, and there is blocked entry. When I try to think of monopolies, the closest I can think of is a company that all of us have inevitably dealt with: The College Board. 

When you look up the College Board, it says it is not-for-profit. However, it has gained criticism because CB’s president makes more than $900,000 in salary and benefits. The executives of the company are also paid large amounts. 

If we look at the characteristics of a pure monopoly, we can connect the College Board to a monopoly. It is the sole seller of products like AP tests, SAT subject tests, and SAT tests. Although there are competitors to the SAT test with the ACT, and AP testing with IB classes, many schools don’t offer IB classes, and there is no substitute to an SAT subject test. In our area, we only have the option of advanced classes like AP classes, where honors classes are less common as we get older, so in our own school, this is really our only option. This is the same for all the other schools that only offer AP tests. There is nothing else like an AP test that colleges consider and approve at our school, so we are forced to pay the College Board’s high prices to test. The College Board is the price maker, as they could increase prices but we’d still pay the fee because we need testing for college and because our school has no other options. There is blocked entry looking at the perspective that it is very hard for colleges to accept another type of testing. 

With total yearly revenues over $600 million, the College Board has a monopoly over student testing. Although many people, including myself, recognize the prices of testing is very high, it is difficult to not result to paying for these tests because the tests College Board provides are so integral to our college application process. Although some are already criticizing the College Board’s monopoly on education, there may need to be further action to prevent the College Board from raising its prices and making it less accessible for everyone to have an equal opportunity to take such tests. 

http://am.blogs.cnn.com/2009/12/29/educating-america-the-big-business-of-the-sat/ 

Spotify Business Model

Spotify's basic business model is a freemium business model. The use of the product is free with free ad-supported service and premium paid subscription. 90% of their revenue is from the premium service and 10% from the ad-supported service. They recorded an operating loss of €378 million in 2017.

So how does Spotify make money?  They do it by selling data. Every song listened to or title of playlists can be turned into data to be sold to multinational corporations. For instance, they have found that Spotify listeners stop listening to new music after age 33. They believe that the construction of our brain, music we listen to as a teenager tends to remain our favorite for the rest of our lives. Such data helps advertisers pinpoint emotional responses to specific stimuli.

We see this in the business model of other online sites like facebook. Which interestingly enough was also worked on by Shawn Parker as we saw in class.

Does it feel weird that our online activity can be sold as data? Are we almost signing up for a scientific study of behavior?



https://fourweekmba.com/spotify-business-model/
https://bigthink.com/technology-innovation/is-spotify-spying-on-you?rebelltitem=4#rebelltitem4
https://reclaimthenet.org/spotify-monetizes-data-about-users-moods-to-advertisers/

Does Spotify Make Money?

For the first time in its thirteen year history, Spotify had its first profitable quarter in 2018. The Swedish based company has been making money since its founding in 2006, but was not making a profit until just recently.

Spotify was created to counter online music piracy. After watching the Napster documentary, we all know what happens to companies that model themselves around the idea of sharing music for free online. Spotify, coming out only two years after itunes, was one of the first legally allowed music streaming services, that many of us continue to use today.

So how does Spotify make money? Spotify, much like many streaming services has two sources of income. One, through advertisements, and two, through prescription services. Since you can create a free Spotify account, that comes with having to deal with advertisements, but for those people who are willing to pay the $10/ per month subscription fee, can access Spotify's entire library add free.

Now why did Spotify only start making money this past year? Since Spotify is trying to not have copyright infringement lawsuits like Napster did, it has to pay the artists and recording companies royalties to use their music. Now as you can imagine, this adds up very quickly since Spotify has such a large library of music. In the beginning of its lifetimes, Spotify didn't have enough consumers to be turning a profit, but since it has it the 200 million mark and increased its subscriptions by 32% it can finally start turning a profit.

Why People Steal

Although lawful consumers and criminals seem to have different motivations when they purchase or steal a good, their motivations are both bound by the desire to maximize total utility.  However, lawful consumers believe that the marginal cost of losing currency is less than the marginal benefit of lawfully getting their product.  When a thief is determining whether they should steal a product, they compare the marginal benefit of getting their desired product with the marginal cost of breaking the law.  If the marginal benefit of stealing exceeded the marginal cost, a logical individual would always steal and break the law.



The reason why most people do not become thieves is because marginal cost is greater than marginal benefit.  One of these costs is the feeling of guilt that many experience when committing an immoral action.  Even if there was no other penalty for stealing, the cost of feeling guilty would outweigh the benefits for some people.  Other costs include the cost of gathering resources in order to steal, such as purchasing supplies and equipment, as well as the opportunity cost caused by the income the thief would lose if he decided to steal instead of work.

Although these are effective deterrents, many more individuals in today's society would break the law if fines and imprisonment were not implemented as additional costs.  The potential of being fined or imprisoned greatly increases a would-be thief's marginal cost, since most people highly value their personal freedom and realize that being in prison would increase the opportunity cost of working for a wage. 

By viewing stealing and other property crimes from an economic lens, interesting trends that are otherwise hidden can be explained.  One example is why widespread looting follows rioting, often perpetrated by people who would not steal from stores under normal circumstances, but do during  riots where the marginal cost of being caught is almost nonexistent.

Another connection is that to reduce crime, societies should increase the marginal cost of committing a crime until it is above marginal benefit.  The cost of guilt can be increased through improving familial connections and education.  The cost of gathering supplies necessary to commit a crime can be increased through methods such as more sophisticated security systems and firearm bans.  And the opportunity cost of earning a wage can be increased by improving wages through better education and training.










Economics: Principles, Problems, Policies (pg. 382)

Housing Crisis

Homebuilders who were able to survive the Great Recession were left in a powerful position. The had very few competitors and took more power in their local markets. We can see that across the country, they have often consolidated until the market is controlled by an even fewer number of builders. Their dominance in this market has intensified the country's affordable housing crisis.

These businesses could easily be classified as oligopolies, where a few powerful groups control the market. It is estimated that the absence of competition costs the US around 150,000 additional homes each year. They have been able to time their work so that they produce less while increasing prices. Economists determined that from 2013 to 2017, housing prices grew over twice as fast as they would have if the market was not consolidated.

One economist notes that big firms have the capital and credit to hoard land for years and work to time the market so that they can make the largest profit. Strategies like these restrict the supply of new housing.

While the consolidation of the building industry may be one contributor to the US housing crisis, land availability, cost of labor, regulations, and materials also contribute to the high cost of housing and should be considered as the issue is addressed.

https://www.upforgrowth.org/research/housing-underproduction-california

Story Telling and The Economy

One of the world's top economists and Nobel Prize winner, Robert Shriller, recently published a book that makes a compelling argument supporting the value of English majors. Since 2008, college students have begun to abandon English and humanities majors in favor of STEM fields. Since the Great Recession, the National Center for Education Statistics recorded that English majors dropped by 25.5 percent. This is the largest decline for any major that has been recorded.

While many individuals may consider this shift for purposes of job security or earning a greater paycheck, their reasoning may not be fully backed by evidence which shows that although some STEM jobs make more money initially, that disappears as there is a fast turn over in the level of skill expected of individuals. In addition, English majors from ages 25 to 29 see a much lower unemployment rate than computer science and math majors. Many individuals from humanity backgrounds advance to higher-paying management jobs and by middle age, pay across majors is similar.

In his book, Shriller examines the importance of storytelling and its implications on the market and even an economy as a whole. He explores different stories that have driven economies. For example, the idea that emerged after WWII that connected the American Dream to the ownership of a house helped to drive the housing bubble. Shriller comments that traditional economics does not take into account how beliefs influence economic events. He believes that economics is a narrative and science can be enhanced by taking stories into account.

Markets can even be slightly manipulated through storytelling. As the global market slows to the lowest rate in a decade, central bankers around the world have worked to tell stories that keep confidence high, encouraging businesses to keep hiring and consumers to keep spending. The head of Australia's central bank even encouraged his colleagues to spend less time on the numbers and direct their focus to become good storytellers

As storytelling becomes an increasingly important aspect of the economy, the ability to communicate clearly to a variety of audiences is a skill that does not go out of mode.

https://www.dailyherald.com/business/20191019/top-economists-say-the-world-still-need-english-majors

Chipotle Turnover

Turnover being on the rise, fast-food companies are facing an increasing battle to retain low wage workers. One such company that is facing this dilemma is Chipotle. As a result, their management team has come together and proposed a plan to offer to pay full tuition costs for certain business and technology programs for employees. Some of these programs, to name a few, include the University of Arizona, Wilmington University, and Southern New Hampshire University. However, there is a catch, as there always is. In order for a worker to be considered, they are required to have worked at Chipotle for at the very least 120 days. Additionally, workers that commit to this deal are required to continue working at Chipotle throughout their time at the university, as well as up to six months after they receive their degree.

Moreover, will this program actually be effective for workers? Aside from tuition costs, students still need to pay for other expenses including room and board, and textbooks. Additionally, interestingly enough, prior to the launch of this program, in some cases Chipotle had been structuring workers' schedules so that their shifts overlap with school classes, making it difficult to work and simultaneously attend school. Again, did Chipotle really institute this program out of the goodness of its heart? Eh. Those who choose to participate in this program will no doubt become more intelligent human beings, and their productivity would, therefore, certainly increase as well. Consequently, Chipotle's employee base will also become more productive and might feel a stronger emotional attachment to Chipotle. When Chipotle does not have to take the time and resources to train new workers, as more and more workers are staying, they will, in the long run, save more money. Ultimately, Chipotle is just looking out for its best interests.

The Infinite Free Trial

One of the most useful tools on a computer is the concept of file compression - the ability to encode data in order to save space. By converting bits and bytes into a .ZIP file, other users can download the files faster and use less of their disk drive. At the forefront of compression software is WinRAR, with more than 500 million users worldwide.

Chances are, you've used this program already. If you spend a lot of time downloading and/or uploading files from websites, WinRAR is a fast way to do both. That means you've also seen this message:

When I first saw this message window pop up, I was shocked to see that the cost of buying a WinRAR license was a whopping $29... until I realized that I could just close the window and continue with the program. I've used WinRAR for years now and have never paid a penny for it.

But, why does WinRAR allow this?

As it turns out, WinRAR is actually meant to be free - when the CEO, Burak Canboy, was interviewed and asked about piracy, he replied, "...we already have a very liberal way of allowing users to continue using our software after the trial-period is over. Many users actually believe our software is freeware, and why would you bother about using a pirated and potentially harmful version if the original can be used instead?"

WinRAR was never meant to be bought by individual consumers. If you check out the license offers, there is an option for a single computer, but also options for up to 999 computers. These are for companies, who are the ones buying WinRAR licenses. They have an incentive to do so, because using "pirated" software could cause them to be sanctioned or prosecuted.

WinRAR's business model, is then, pretty genius - give it out for free to individual users, who introduce it to their companies, which then buy hundreds or even thousands of units of their product. Using incentive and supply/demand, WinRAR is a very profitable "free" product.

How Video Also Killed the Radio Star

As we have watched and learned about in the documentary, “Downloaded”, Napster was an online music sharing platform that allowed people to share digitized audio files. Its main users were college students who typically traded audio songs in an MP3 format. During its peak, Napster had 60 million users using its software to download music off the internet–for free.

Being able to download your favorite songs and create your own music library for free was the biggest appeal for its users. However, this became a controversial issue very fast as record label industries now had to compete with Napster in addition to the fact that it was copyright infringement. From an economic standpoint, it was an easy choice to use Napster to access music for free rather than pay for the newest album’s CD. As a result, record label industries and artists were basically working for free, reaping no economic benefit to the work they put in to create new songs and music for others. It cost nothing for the consumer, however artists needed the revenue to pay for their record label, publicist, and everything else essential to maintaining their fame.

The villain to the creation of Napster and the threat to the music industry was the increasing innovation and technology present at the time. This wasn’t the first time technology had created economic issues, and it won’t be the last. From watching this documentary, I started to think about how newly invented technology at the turn of the 20th century allowed for music videos to threaten radio stars, just like the song “Video Killed the Radio Star” by the Buggles.

Instead of Napster, meet MTV, Music Television, which was another platform responsible for decreasing the need for radio artists. Released on August 1, 1981, MTV made the experience of seeing bands live available to the public from the comfort of their own house on their own couch. Reporters described radio as a “skeleton” as the public tended to choose to watch shows live than listen to them on the radio. MTV also made it possible for international artists to broadcast in other parts of the country. During this time, even British music was made available and popular in America, while artists had to compete with each other for auditory and visual images. MTV allowed artists to be more creative with their music as they were able to express themselves more.



Sources:

https://www.theguardian.com/music/2013/feb/24/napster-music-free-file-sharing
https://www.cnet.com/news/did-video-kill-the-radio-star/
https://www.usatoday.com/story/life/music/2016/08/01/35-years-ago-mtv-debuted-and-video-killed-radio-star/87678898/