Chapter 3,4,5,6,7 RWEs

+ business/gov tactics

1. Nudge theory UK+SG

   • Sweets as back of shops/ category rating abcd

     • reduced by 25% UK

   • pension savings default increase over time

     • increased long term savings, vs opt-in

     • Correct choices of under saving

     • Freedom

2. NY serendipity restaurant anchoring (retail pricing strategies)

   • Anchoring: Item listed as $69, make $17 seem reasonable/cheap in comparison

     • sales of 17 burger increased after

       Evaluation:

     • Decisions are not based on rational cost-benefit, but anchored to initial price.

     • Suggests firms exploit behavioural biases; consumers are not always rational.

   • Supports behavioural economics' critique of perfect information assumption.

3. USA organ donation (default choice)

• Default = opt-out → high donation rates

  • In US states with opt-in systems: only ~25% consent rate

  • In contrast, Austria (opt-out): ~99% consent

    • Evaluation: Shows how default settings override rational choice — people stick with default due to bounded rationality. Challenges assumption of utility-maximising, fully informed consumers.

    • More socially desirable/less backlash tactics, but still may feel sense of manipulation
      

Market structures Oligopoly

collusion

1. OPEC

   • few producers coordinate output

   • 2020: cut supply to raise prices during demand slump

     • collusive oligopoly acts like monopoly

     • Higher prices lower output

     • Can stabilise market in some cases

   • OPEC talks collapsed when russia refused oil cuts, Saudi responded = interdependence

     • increasing production = price war, low prices

     • depend on trust and transparency

     • Risk: attract regulatory attention (2021 US sense accused collusion)

     • Consumer higher prices and reduced efficiency

2. Dairy products in UK supermarkets

   •   Sainsbury, Asda and Safeway, etc, colluded to increase milk prices in 2002 and 2003

   • Tesco has 27.9% of market shares in British supermarkets, Sainsbury’s has 15.6%, Asda has 14.4% 

     • 270 million pound additional profit overall

       • 80-110 million pound fine NOT ENOugh

   3. Fast food differentiation

    

   
   

Monopolistic competition

1. Coffee shops in UK (preset, costa, locals)

   • many firms and low barriers with similar but differentiated products (location, branding, menu)

     • Short run abnormal profits

     • Greater consumer choice, innovation, NPC

     • inefficient allocation (P>MC)

     • Long run normal profits

       • More variety than monopoly but firms not produce at lowest cost

Monopoly/natural

Monopoly

1. Goggle: 90% of global search market, price maker (data/ads)

   • abuses of market power in 2018: EU fined billions for forcing android to pre-install goggle (manipulating competition)

   • Allocative inefficiency= restricted consumer choice, biased search (prioritising own shopping sites)

   • abnormal profits

     • fund R/D, limited competition however

   • Gov anti-trust regulation, depend on enforcement strength / speed, size

2. Apple innovation

3. Uber predatory pricing

   • competitor taking market share away in California (fly-wheel)

   • Low prices to outcompete bc of EOS

     • consumers benefit

     • Flywheel loses almost all shared

4. Same with Amazon for diapers.com

   • Amazon ran losses during this time

     • diapers more innovative, Amazon takeover hindered innovation, harm consumers long term benefit short term w low prices

5. Luxottica glasses

   • less innovation but high prices

Natural

1. UK water industry (Thames water)

   • hugged fixed infrastructure cost, multiple firms would be inefficient

     • EOS justify

   • Allows consistent service, but lack of competition

     • less incentive for efficiency + quality

   • Regulation needed to incentivise and prevent abuse (control prices/quality assurance)

     • 2023: faced backlash for poor sewage handling, public pressure+ political impact (gov complacency)

Rationality / beahvioru

1. UK sugar intake—self control

   • NHS recommended levels, sugar consumption still high above recommended levels

     • people aware but still eat: habits and bounded control

     • Dont always act in long term self interest, nudge theory better

2. Bounded rationality/computational

   • Hard Rock Cafe SG over 200 menu choice, do not have capacity to process + best choice

     • this may not always be issue with use of technology like booking websites which can make high Q of info easy to process+ make best choice

3. Selfishness

   • assumed to act selfishly—(own best interests, may not)

   • Bill gates donates a lot to many charities+ healthcare

4. Imperfect info:

Perfect competition

1. India tuktuks

Asymmetric info + solutions

moral hazard

Adverse selection

1. USA used car market

   -buyers dont know quality, risk of buying bad car

   • reduced demand for all used cars market failure, good used cars not sold

   • Gov; dealers must disclose history , warranties, etc, buyers allowed to return if bad condition

     • Reduces info gap , more efficient

   • but enforcement required , varies

   • Cost to gov and firms (admin ) may be passed onto consumers through price

2. USA health insurance (pre-obama)

   • consumers have more info abt own risk than sellers,

   • Sick people more likely to buy —> insurers spend more, so make prices higher for all

     • insurers may ask for health history

     • Obama care 2010, mandated coverage + subsidised

       • reduced uninsured , improved access but price stil rise

3. SG/EU food labelling

   • Mandatory calories, sugar, fat labelling on packaged

   • SG: graded (ABCD) sugar+ ‘healthy’

     • consumers can make better informed choices,

     • However

       • consumers may have limited cognitive: dont know significance of calorie/fat, so SG labelling may be better

       • Also, stil remains rational limitations: slelf control

       • Firms may manipulate/escape with small text+harder to understand

     • Better effective with education+nudge policies

taxes junk food

• USA: tobacco, alcohol, soda

1. - UK junk food tax, recent added,

   • since 2013, places add soda tax

   2. - only Hungary and Mexico have junk food tax

      • 2011 4% tax on packaged foods/drinks with high sugar

        • evaluation: junk food C decreased due to price increase (tax), BUT ALSO: educational campaigns

        • People bought cheaper and often healthier alternative

        • Hungary is focused on nutrition incentivised firms to renew recipes , many did to make healthier

          • gov revenue: 219USD —public health

      • 2013, Mexico 8% tax on junk food/calorie dense

        • evaluation: junk food consumption reduced by 7%

   3. But regressive: most impact on low income groups, (or consume a lot of junk food)

   4. Argument of infringing people’s choice—political pressure

   5. Education option; more educated, junk food consumption less

   6. Need to make healthier food more accessible and cheaper

taxes cigarettes

Australia tobacco tax

• One of highest in world

• Aim to reduce daily smokers

• Price rise by 10x since 1990s

  • make up 65% retail price in taxes

• Seems to help reduce smoking rates

  • regressive tax , poorer more smoking rate also, price affect them , (3x rate)

• Education/mental health campaigns— not just addiction, reduce availability too, not just price

China cigarettes

Vaping tax

20% sales tax B.C since 2020

Quebec introduced complete ban of vape sales,

subsidies

1. US rice:

• excess of $1 billion subsidies towards farmers in 2004

  • Haiti negatively impacted: 60% rice imported, but for farmers without subsidies in Haiti and with lowered tariffs to US, cheaper rice from US replace domestic

  • Fewer profits now 80% imported

2. India fertiliser

• reduce subsidise on soil nutrients, chemical free farming

• Hurts crop yields and earnings, 60% population depends,

• Prices of crop nutrients rise globally crisis

Max price

1. Malaysia masks during Covid

   • shortage of face masks

     • smaller sellers charge above the limit RM0.10 over for surgical masks and RM2 over for N95

     • Most large firms complying

     • Other stores would buy large Q and resell for profit ,

       • face fine of RM100,000/imprisonment, or RM500,000 for

     • Singaporean cross border buyers since cheaper in RM

       • Sg provide for free

2. Venezuela inflation —price ceiling

   • Rice equilibrium price 15x higher than max price, but max price of only 12c

   • Monitor supply chain—opp cost

   • Way below equilibrium, no incentive

   • Waiting time whole day, rely on black market

     • high prices

Min price

1. EU CAP/milk lake

   • overproduction, excess saved for future if output falls—> milk lakes, butter mountains

   • Brussels buys up milk since 2015 , keep farmers in business after falling prices : E640 million, 100s of tonnes in storage ,

   • pay E120,000 a month for storage ,

   • Loss when selling

   • Dumping foreign markets in west Africa

2. Canada

   • artificially high prices for milk, chicken and eggs—spillover on other products

     • regressive

     • Richest farmers benefit

3. Scotland MUP

• alcohol: preventing alcohol related deaths — point for aims of gov to reduce demand instead of protect producers,

  • limited effect on dependent people

Min wage

posisitve externalities—healthcare spending

1. UK NHS spending

   • OPP cost: 129 billion in 2018/9, increase with inflation by 2020,

     • also spent on education, initiatives, training, infrastructure, etc

   • Under provided+funded—> meet demand and MSB

   • Low efficiency and leads to moral hazrad (wait times)

Negative consumption externalities: ads + gov regulation

1. SG checkouts in groceries dont allow demerit goods like alcohol/cigarettes, diesel, petrol, lottery tickets to be bought under vouchers

2. ad campaigns for healthy food, anti-smoking

   • Australia

   • USA: “tips from former smokers” campaign 2012 successful

     • 1.6mil attempt to quit

     • Cost-effective: less than $200 per year of life saved

   • BUT: depends on restriction on advertising FOR—UK: 2017 Junk foods ads spent more than healthy eating

     • obesity increases seen

     • 27.5x spent on junk foods ads

       • also depends on quality of ads

vaccines positive externalities consumption + public good

1. UK vaccines subsidised

   • 20 bil pounds, for R+D

   • Vaccination campaigns

     • free vaccines, accessible

       • reduced hospitalisation significantly (more than vaccinated %) -herd immunity

2. Sg Free of charge vaccines /subsisidsed

   • free for kids

   • reduce risk of disease outbreak

   • For adults heavily subsidised —low price=access

   • OPP cost

pos externalities consumption: Education

1. Korea Uni Subsidies

   • 860bil won

     • all unis nation-wide, not taking into account performance, but by size and employment safety

   • In order to achieve job security

2. Finland 2000

   • free education since gov funded, Uni also

     • top ranks in education, productivity and innovation

3. UK legislation

   • ages 5-16 school is mandated

   • Truancy rates monitored and attendance rates (monitoring OPP cost/enforcemet), but we’ll emforced,

     • but depend on quality for outcome, resources availible

Regulation in dealing with Negative production externalities (also CPR air)

1. China air pollution, 2013 reached hazardous levels

   • policy: gov regulations: simple to implement, force compliance + limit pollution

     • environment regulations, shutting down causal factories and promoting renewable energy

     • Restricted coal-fired power plants

     • Vehicle standards (limiting causal tech)—also SG on car emission

       • Outcomes reduced 40% main cities but less in rural/industrial areas

     • but less efficient—doesn’t diff between low/high cost of reducing pollution

     • Policing OPP coSt

2. Market based policies:

   • carbon taxes

     • but: not forced to reduce

     • Regressive (if tax)

     • Estimating right amounts

     • More stable prices

     • Simpler

     • Pollution reduced at lowest cost—>efficient (for CT/TPs)

     • Less open to corruption

   • Emission trading scheme —

     • cap carbon China: 2011

       • very complicated and so there were delays in implementing

     • Australia 2012, faced political backlash and removed by succeeding party

     • European trading scheme

       • reduced emissions significantly, 2005-2021, greener energy

       • Initially too many permits used so many free permits to sell without reducing emissions a lot

   • Carbon tax

     • Sweden 1991,

       • emissions reduced by 25% up to 2015, not impacting GDP growth

     • UK $25/tonne of CO2

       • emissions at lowest levels, cleaner fuel used

3. Education/awareness

Overall: probities of gov- revenue eg

4. UK congestion charge—consumption

   • reduced traffic by 30% in 1st year

   • Improved air quality and

     • revenue used for public transport

5. Also consumption: SG Cert O entitlement every ten years

   • costs very high to own a car, let alone buy =, cost based on car type

     • disincentive to buy and use cars

Taxes on Negative consumption externalities

1. Australia cigarettes

   • Graphic package warnings laws 2012,

   • Taxes 65%

   • Public awareness campaigns, ads

     • fall by 5% from 2011 to 2019

2. China cigarettes

   • 50% chinese men smoke, gov run firms (chinese national tobacco company)+ very profitable

   • Contributes to tax revenue

   • But burden to economy—>healthcare

3. Sweets

   • /UK nudge policies—> back of stores and banned from checkout

     • Sugar tax

       • regressive, PED, but low price but addictive

   • Norway sugar tax— 83% on sweets in 2018, 42% bevs

     • sugar consumption fallen significantly (by ½ since 2000)

     • But cases of cross border shopping to evade tax+ also tax revenue for gov: cross border revenue increases

     • Lay off staff—> unemployment

4. Rwandan plastic bags

   • banned production, use and importation

     • very clean, reduced pollution

     • But smuggling of bags

Public goods

1. London street light 2007

   • LED lights increase Safety and reduced energy

     • reduced crime rates for well lit areas—> merit , non-ecl, non-riv

2. Sweden waste collection 2015

   • recycling waste, only 1% in landfills, publicly funded

3. US military

   • spending OPP cost significant

   • Hard to place value— surveys to ask people but still not accurate—> may over or under perceive the benefit

Common pool resources

1. Amazon deforestation 2000-

   • illegal logging, ranching,

   • Monitoring of activities,

     • OPP cost

   • Gov operations: green Brazil: Military forces

     • Increased after some time due to weak enforcement

     • loss of biodiversity and climate change ,

2. Overfishing North Sea 1990-

   • unsustainable practices

     • EU: common fisheries policy, quotas and sustainability measures,

       • stocks partially recovered initially poorly enforced

3. California water management 2014

   • Overuse for agriculture —depletion

   • Legislation: sustainable groundwater act passed 2014, regulates usage

     • improved monitoring and less over use

     • Enforcement weak+ OPP cost

4. Nepal 1970s community forest management

   • (self governance?)

     • allowed communities to set rules

       • forest cover increased in many areas