Barnes & Noble claims elimination of agency pricing will increase prices

Posted on June 9, 2012 by aviyer2010

An article in the New York Times (June 8, 2012) describes the Justice department’s settlement with publishers to eliminate “agency pricing” which was claimed to enable collusion among publishers for ebook prices. Under agency pricing, five publishers were allowed by Apple to set their ebook prices and pay Apple 30%. The publishers had claimed that this prevented Amazon.com from dropping prices to uncompetitive levels for ebooks, thus stressing hardcover sales. Would elimnation of agency prices raise consumer prices because the supply chain would be less coordinated ? Does Barnes & Noble prefer agency pricing because it would decrease Amazon’s pricing competitiveness ? If the Justice department’s ruling decreases retail prices to make it uncompetitive for writers’to participate, will the supply chain be worse off ?

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India’s large grain stockpiles, yet 21% undernourished

Posted on June 9, 2012 by aviyer2010

An article in the New York Times (June 8, 2012), describes the 71 million tons of grain stockpiles in India, the world’s second largest invenory. But distribution to its poor citizens through ration shops is inefficient and corrupt, leaving 21% of the population undernourished. Given the inefficient distribution, should the poor be given money to shop, rather than physical product ? How should the system ensure that the poor are provided grain – will more spending to distribute product improve efficiency ? Is the government’s price support the culprit that distorts the market and makes grain non affordable ?

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A shift from camel to colorful jeans

Posted on June 1, 2012 by aviyer2010

An article in the Wall Street Journal (May 31, 2012) describes the shift in the color palette from camel, six months ago, to mango, neon pink, purple, red etc. The new trend has customers shifting to color and thus buying new accessories – shoes, scarves, blouses etc. Even men’s jeans have started introducing green – with sales for demins in the US growing 2.7 % and prics rising 7.5 %. The trend was reported to have started last year and become mainstream this year. Will the colorful extravganza be followed by muted colors next year, to keep demand growing ? Or will trend continue next year with color variations across Fall ? Or will it be back to the usual blue denim ? How will the global supply chain adjust to such fashion shifts – will local US manufacturing become more attractive to ride these trends ?

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Nokia’s smartphone component costs vs Apple’s iphone component costs

Posted on June 1, 2012 by aviyer2010

An article in the Wall Street Journal (May 31, 2012) describes an estimate by iSuppli that components for the Nokia Lumia 900 cost $ 209 while those for the 16GB iPhone cost $ 190. But the Lumia sells for $ 450 without a contract, while the iPhone sells for $ 649. The margin for Apple is thus twice as much as Nokia. Are the Lumia components more expensive because they are better i.e., larger screen and more wireless chips, and thus justified as a means to attract customers by lowering margins and being competitive ? Are Apple’s supply chain and procurement processes inherently superior to Nokia’s ? Or is it Apple’s cash hoard that enables early cash payments to suppliers, thus enabling lower component costs ?

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Amazon requesting some of its sales tax back from California cities

Posted on June 1, 2012 by aviyer2010

An article in the Wall Street Journal (May 31, 2012) describes a request by Amazon, which recently agreed to collect sales taxes for purchases soon, to get back some of the sales tax as an incentive. The company claims that its warehouse locations were justified based on location and logistics costs, but claims to follow practices used by other retailers such as Kohl’s. Given that a portion of the sales tax is meant to cover local costs, should cities be allowed to give it back to retailers or should they just reduce tax rates ? Given that many other retailers do not receive such incentives, could providing such incentives to Amazon be a competitive requirement ? Could the jobs generated by the warehouse, and associated tax benefits, be considered a sufficient reason to provide a break to Amazon ?

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Export US gas or keep it to reduce energy costs at home

Posted on June 1, 2012 by aviyer2010

An article in the Wall Street Journal (May 31, 2012) describes a US decision to hold exports of natural gas, whose generation capacity has grown rapidly. Countries like Japan want to use liquified US gas in the future to replace their nuclear power sources. But others want the US to focus on ways to stimulate US demand for natural gas thus decreasing the country’s dependence on foreign oil. Given that exports serve as a willing market for gas today, should they be prevented ? Should the US government charge for the energy independence in the future as exports are prevented now, to assist producers ? Are gas prices so low because the full cost of fracking has not been charged to producers ? Or is the steel pipe demand (discussed in earlier blogs) and associated jobs growth generated by the gas industry a sufficient societal benefit that compensate for the apparent pollution impacts ?

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Battery manufacturing capacity rampup and short and long term impact

Posted on June 1, 2012 by aviyer2010

An article in the Wall Street Journal (May 31, 2012) describes the US government’s $ 1.26 billion investment in battery capacity, and demands for rapid ramp up and hiring to create 6400 jobs. The slow growth rate implied only 2000 workers and excess capacity, with plant shutdowns looming or completed. But the size of the battery capacity implies that car manufacturers can count on available batteries as they launch their electric vehicles, thus providing a domestic source of supply. Is it appropriate for the Federal government to invest in component capacity to reassure or stimulate downstream demand ? Is this an example of market failure and will such industries always require the government to step in ? Should DOE’s supply driven evaluation be modified to permit battery manufacturers to synchronize supply with demand ? Or should the US let Chinese battery manufacturers accept the demand risk and thus be suppliers to US automakers ?

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The challenges in estimating health system response to waiting time measurement systems

Posted on May 27, 2012 by aviyer2010

An article in the Wall Street Journal (May 25, 2012) titled “Long Medical Waits prove hard to cure” describes different waiting time measurements and the consequent dysfunctional system response. Measuring the waiting time experienced by patients served or focusing on service within 48 hours creates an incentive to prioritize more recent patients to improve performance. A focus on the number waiting to see a specialist creates an incentive to wait to add patients to the queue. A Veterans Administration report claims that while records suggested that 95 % of patients seeking mental health waited less than 14 days, the actual % was 64 %, if one considered the total wait time. But perceptions of patient waiting time can also be erroneous. How should the system be measured to decrease the incentive to create unintended consequences ? Should the referral process be tracked across doctors and clinics to ensure end-to-end measurements ? How should the patient’s perspective be ensured in these measurements ? Could incentives be designed that wille ensure prompt service while maintaining quality ?

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Pipeline flow direction in Canada to accomodate tar sands output growth

Posted on May 27, 2012 by aviyer2010

A article in the Economist (May 26, 2012) describes the increased oil production from the tar sands in Alberta, Canada, estimated to gow to 72 % of Canada’s output by 2020 (from 58 % now). But getting that oil, which can emit three to four times the greenhouse gases as regular oil, to market, has been a challenge. The holdup of oil pipelines from Canda through the US has now required potentially reversing the flow of a pipleine in Ontario – increase its utilization – which has dropped to 50%. Canadian gas exports have decreased as US exploration of shale gas has increased. Should the Canadian government focus on getting the gas to Canada’s eastern regions, that currently use more expensive imported oil ? Or should they focus on getting the tar sands oil to China via ports in British Colombia, albeit with a riskier long pipeline through native lands ? Should the nature of the oil flowing on existing pipelines, and the direction of flow, be subject to regulation ? Is the focus on blocking pipelines as a means to reduce exploration of tar sands, an acceptable approach for environmentalists ?

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Can coordination of health care save 30 % of costs ?

Posted on May 27, 2012 by aviyer2010

An article in the New York Times (May 23, 2012) describes an effort by UCLA’s Health System to save 30% of costs by coordinating the hospital, patient, doctors and health insurers. These reductions will come from decreasing the number of X-rays per patient per day from 10 down to two, discouraging unnecessary blood transfusions (given the $ 400 cost per unit of blood), eliminating fried foods and encouraging wellness etc. Given the current $ 2.7 trillion cost of health care, can coordination of efforts and encouraging “accountable care organizations” enable realization of expected savings ? Will patient followup and after care responsibility have to be assumed by the accountable hospital to ensure compliance to medicine ? How will the system be incented to deliver on these expected savings ?

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