The Electric Car Market

This article found in the September issue of The Economist titled "Plugging Away", discusses the European market for electric cars.  The article specifically mentions a French firm by the name of Groupe Bollore' and their approach to this rising market.  The article discusses how Bollore' has focused it's efforts not on the electric car market itself, but on the management and storage of the energy that will make such cars run.  Bollore' claims to have manufactured a battery that is more powerful and more resistant to external temperatures than the lithium-ion batteries currently being used by electric car manufacturers.  Whether or not Bollore' indeed makes a superior battery is not the imposing question however, the question is where do we think the market for electric cars is heading?

In looking at what the electric car market may or may not do in the future there are many economic factors to consider.  The first and most prominent factor is whether governments will even allow a major transition to electric vehicles.  Just as important is evaluating what the implications would be to the price of oil for existing automobiles that run on gas?  In looking at a supply and demand curve for oil, if you introduce a supplement in the form of electric cars, what can we expect to happen to the curve?  If an affordable option is streamlined and introduced into the market you can expect the demand for oil to shift to the left.  This shift would inherently cause a drop in price for oil.  If on the other hand the electric cars continue to be higher priced than gas powered automobiles we can expect little to no change to the demand for oil.

In examining the demand for oil and the effects of what the pricing of electric cars will do to the demand we can see the risk that Bollore' is taking.  Bollore' is currently spending billions of dollars to push forward the manufacturing and marketing of their new batteries.  If the market for electric cars does not take off as Bollore' is expecting and electric cars do not become more affordable to the public, Bollore' will crumble.  On the other hand, if Bollore' can indeed provide a cost affordable battery for electric cars that is better than the current option and the electric car market does take off and gain significant market share in the automobile market then the billions of dollars spent by Bollore' will have paid off in a very big way.

Taking a Bite Out of Apple: Smartphones in China

This article, "Taking a Bite Out of Apple" , discusses Apple's new strategy to reach the Chinese market and other developing nations, and compares their efforts to Apple's major competitor in this market, Xiaomi. Typically, smartphone devices in the United States, especially during the introduction phase of the product life cycle, have relatively inelastic demand because of consumer perceptions on brands such as Apple and Samsung. Even though these products have hefty price tags, brand loyalty makes these items a necessity rather than a luxury for many consumers who are willing to pay these high prices.

This is not the case, however, in some other nations, and this article discusses China as an example. Just one week before the release of the new iPhone 5c and iPhone 5s, a Chinese firm, Xiaomi released a new device called the Mi-3. Xiaomi was recently founded in 2010 and has already earned billions in revenues and has often been compared to Amazon. The Mi-3 can be purchased at $330 (U.S dollar) compared to the $733 iPhone 5c price tag, and is available directly to consumers online rather than sold in retailers. Xiaomi uses a different tactic from Apple in that they offer the device at a relatively low price, and then sell services to users in order to make a profit as the customers use the phone (just as Amazon sells e-books to Kindle users; i.e. product complements). Also, Xiaomi is receptive to consumer feedback and guided by users, whereas, Apple has a very standard and rigid operating system with limited freedom. Because Apple does not hold the same level of loyalty in China as in other regions, these products can be analyzed as substitutes in the market, and as the first three weeks of sales has shown, Xiaomi is controlling more of the market share than Apple's iPhone devices in China. I personally believe it is in response to the price to consumer value comparison among substitutes available.

Additionally, this article was intriguing because as Apple is penetrating the Chinese market, Xiaomi is attempting to, for the first time, develop new products for the international market. It will be interesting to see the success (or failure) of these competitive efforts.

Construction boom of St. George, Utah

I read an article referencing the the construction boom of St. George, Utah and the later recession, and how home builders are responding to the demand of the current market. The five to seven year period prior to the recession of 2008 was a huge building boom in St. George.  We saw home prices double over the course of these years.  When the recession hit, the demand for new housing literally dropped to a fraction of what it was during the boom.

Looking back from now (2013) we are starting to see home buying on the rise, though not as fast as it was during the boom, as well as interest rates beginning to go up.  Some developments that were left with only streets paved and one or two houses built at the end of 2008, are now seeing plans for ten to twelve houses being built over the next year.  While we do not see the demand of 2005, we can most definitely see elasticity taking effect with more modest prices on new homes as well as builders constructing far less new homes.

Welcome Fall 2013 Students

Both of my ECON 6200 sections will be posting and commenting on this blog this semester.

The remainder of the semester will be organized into 6 two-week blocks. Block 1 starts now, and ends on October 2.

Each of you will be randomly assigned to 1) post for a grade in 2 blocks, 2) comment for a grade in 2 blocks, and 3) have no required posting or commenting in the other 2 blocks. Those assignments will be made through Canvas or e-mail. I'll start making the assignments for Block 1 later today or Friday.

You should refer to your syllabus for guidelines on how blogging will be evaluated.