The Smartphone Population

The Smartphone Population

The article I studied is a podcast by the investment firm Andreessen Horowitz that describes the smartphone industry. This article was particularly interesting to me because of my interest in working for a mobile development company.

The smart phone industry only has a few big players making it an oligopoly. When key players make changes the industry is dramatically affected. An example is Apple’s recent addition of the Apple Pay feature. This feature makes it simpler to make purchases in apps on an iPhone. Ease of use is a large driver for mobile users and the addition of Apple Pay may push the demand curve for in app purchases to the right.

The population of smartphone users also has an interesting dynamic. Google currently has approximately 75% of the market share for smartphones. Apple has approximately 15%, and the rest is split among a few other players. The interesting thing is that Apple has the majority of high end users, and therefore a majority of the revenue for apps. For an app developer, this creates an interesting situation. You can focus on the larger population of Android users, or pursue the smaller but more profitable population of iPhone users.

Another interesting point that the investment analysts made is that the smartphone market is sometimes treated like the personal computer market. The personal computer market has been similar to a commodity market. Like the computer industry the smartphone industry only has a few major inputs. Those major inputs, ram, storage, processors, screens, developer hours, are all the same for the computer and smartphone industries.

The difference one of the analysts pointed out is that phones go everywhere with you. This makes style and ease of use more important features. The phone industry is much less of a commodity industry than the computer industry.  The size, replacement cycle, and higher end aspects of the phone industry make it much more appealing as an industry because there is room for long-term sustainable competitive advantages.

The article Mobile is Eating the World – and Apple is Gobbling the Fastest can be found online here: http://a16z.com/2015/01/30/a16z-podcast-mobile-is-eating-the-world-and-apple-is-gobbling-fastest/

Drone Market

One industry you can see soaring during Independence Day fireworks is the drone industry. Drones can be used for work and for play, and can be bought almost anywhere.  Many drones have a camera that can be used in various ways, such as a real estate professional showing a home or a sports fanatic trying to record a touchdown pass.  Others would like to use drones to more conveniently deliver goods to customers.  The government uses unmanned flying units to spy on and deliver ordinance to the enemy.  A mischief maker can use his spy drone for secret purposes.  What can hinder this industry that delivers a product everyone can have a use for?

Recently, an unmanned, flying drone landed on the White House lawn.  Anyone could have done this, regardless of regulations.  President Obama has asked the FAA for more regulations on drones.  He realizes their limitless uses for enjoyment and productivity, but also sees a potential threat to possibly anyone.  How will this change the market for unmanned vehicles? http://time.com/3683923/obama-drone-gulation/

One example of how expected government regulations have influenced the market is firearm and ammunition sales after President Obama was elected to office.  Firearm sales spiked before the inauguration and certain ammunition still can’t be found on Wal-Mart’s shelves most days.  What are the effects on supply and demand if regulations state that the current drone technology is too high for average consumers?

The effects of government intervention aren’t always clear.  What will happen to the drone market when more regulations are enforced?  Will companies be able to use them for profit which would expand the economy?  Will drone makers hold back spending for development until laws are set? If strict regulations are set, how does the industry continue to thrive when its product cannot be reinvented? http://money.cnn.com/2014/11/24/technology/faa-drone-regulation/

Minimum Wage

An important topic that affects both employees and employers is the topic of minimum wage. It has recently become a big topic of discussion as governments consider raising minimum wage to as high as $15 per hour. There are many arguments for minimum wage law, but most arguments support one goal - to assist those individuals who make below poverty level wages and are socio-economically considered “poor”. Another argument states that with the productivity increase of our current work force and the increase in average wage rates should result in an increase in minimum wage. While compelling arguments can be made in favor of minimum wage, the question is whether or not minimum wage is producing the desired results. Ultimately, the answer is “no”.

In 2004, Paul Kersey (an economics major from the University of Michigan-Dearborn, lawyer, labor policy analyst, and former Bradley Visiting Fellow at the Heritage Foundation) gave a testimony to the House of Representatives regarding economic effects of minimum wage on society. While the data referenced is outdated, the underlying principles are basic laws of economics and remain in force today. Minimum wage creates a price floor that results in a shortage of jobs. In his testimony he indicates that the elasticity of demand for labor is -0.5, which means a 10 percent increase in minimum wage results in a 5 percent decrease in jobs. Other compelling arguments against minimum wage include: limiting employment options for teenagers and individuals lacking in employable skills; enticing illegal immigrant workers to our labor force which take jobs away from US citizens; and, variations in cost of living makes minimum wage irrelevant in some areas.

The topic of minimum wage affects all other markets because minimum wage directly impacts income levels, which is a demand shifter, and input price, which is a supply shifter. By driving up minimum wage with a price floor and forcing higher income levels, businesses must compensate for the higher input cost by decreasing supply of goods. This causes the supply curve to shift to the left decreasing quantity and increasing price. The increase in income simultaneously shifts the demand curve to the right for normal goods and causes a further increase price. In summary, an increase in minimum wage causes a price increase in most other markets.

The market has a natural ability to find an equilibrium point that satisfies both consumers and producers. The same principle holds true in the labor market. While the minimum wage law was enacted with good intentions, the law cannot stop or alter the natural forces of a free market economy.

Thoughts for this post taken from the following websites -

http://www.forbes.com/sites/timworstall/2015/01/21/there-is-no-reason-the-minimum-wage-should-rise-with-productivity-or-average-wages/

http://www.csmonitor.com/USA/2015/0101/With-21-states-raising-minimum-wage-2015-is-a-tipping-point-video

http://www.balancedpolitics.org/minimum_wage.htm

http://www.heritage.org/research/testimony/the-economic-effects-of-the-minimum-wage

President Obama targets "second-earners" with new proposed tax credit

With his state of the union address completed, President Obama has proposed another set of taxes that will surely rile up a lot of people (http://www.npr.org/2015/01/20/378680818/transcript-president-obamas-state-of-the-union-address). Besides the ever-popular attacks on investments and rich people, the president also mentioned a new tax credit aimed at “second-earners” in a family. I think this may constitute an attack on families where one partner decides to drop out of the workforce or work part time for some reason, say to care for children or an aging parent. Take two families making $60,000 a year: in one family a mother works full-time for an employer and in the other she does not. Under Obama’s plan, the first couple receives a large child-care credit and a new second-earner credit. The second couple does not — and so pays higher taxes than the first one. This in fact encourages families to abandon their hope of staying home with their children and penalizes them if they do decide to stay home.

On the other side of the equation are employers. Hiring managers may be excited about the prospect of this “second-earner” credit because it gives these people an incentive to actively join the job recruiting pool. Much like the Work Opportunity Tax Credit (http://www.doleta.gov/business/incentives/opptax/) encourages employers to hire individuals from certain target groups; hiring managers could use the “second-earner” credit to their advantage to recruit more qualified individuals into their companies.

What do you think? Does the second-earner credit punish those who wish not to actively seek work for whatever reason? Could employers use this to their advantage to lure hesitant workers into the recruiting pool? What other perverse incentives could arise from using this tax credit to influence a person’s decision to stay home? 

Healthcare Economics: What will happen if Healthcare becomes “Free”?

Healthcare Economics: What will happen if Healthcare becomes “Free”?

As a healthcare professional I am very concerned with Healthcare economics, but as a consumer I find that there are huge problems regarding the affordability of healthcare.  We all have likely suffered the anxiety of opening a bill from a healthcare provider. This anxiety comes from not knowing how all of the factors will play out.   Some of the common unknowns people might have could be phrased as follows:

1.      Will insurance cover the procedure in question, and if so at what percentage?

2.      What if any of my deductible have I met?

3.      How much can a five minute procedure really cost?

Too often it seems we are surprised by the answers to these questions.  It seems now days that you need a law degree and an English degree to understand the terms of our insurance, and if you are uninsured you need to be independently wealthy to afford healthcare. (Some may also argue that you need to be independently wealthy to afford insurance).  The simple truth is that most people do not fully understand what the end price of their health care will be and when they get the price it is much greater than they expected.  This is where much of anxiety surrounding healthcare comes from, and this anxiety has caused a great number of the population to cry out for healthcare reform, and many of them even ask “What would happen if Healthcare were free?”

I believe that simple economics can answer that question.  The quantity of healthcare services demanded at a price of zero would certainly overwhelm the quantity supplied by suppliers at the price of zero.  Although consumers would be thrilled to have someone else pick up the tab this would increase their economic cost because they would have lines larger than anything ever seen at Disneyland.  Many people would find that they pay the price of free healthcare with their life because it is simply not in supply at that price.

Another problem would be the fact that for-profit healthcare providers would not supply services for nothing (which is what the Government currently pays), and this would leave us with federally funded healthcare providers.  We have seen how well this form of healthcare works through Veteran Healthcare services. 

It is plain to me that free healthcare is a myth and clearly not an option.  But the question for discussion I have is what can be done if anything to fix healthcare in the United States?  For your reference I have included a link to an article that describes many of the options available to lawmakers.  Please look them over and let me know your thoughts.  

As for current healthcare reform, following the last presidential election I was very surprised to see people posting on Facebook and other social media sites that they were “moving to Canada”.  I was surprised because Canada already has much of what our current leadership is moving towards which includes somewhat free healthcare with low supply and great demand. People wait months just for a simple CT scan. Please post what your thoughts are current healthcare reform.  Do you think it will help or not?

  It seems to me that current healthcare reform is looking to make Employers and Healthcare providers foot the bill for healthcare, which I believe will ultimately lead to higher unemployment and less for profit healthcare.  Again because of the law of supply and demand employers will hire less people due to increased costs, and for profit hospitals will close doors because they cannot compete while being paid what the government offers. 

http://content.healthaffairs.org/content/24/6/1399.full

Gasoline Prices and Localized Monopolies

The price of gasoline and diesel fuel amaze me,  regardless of when prices are high or low.   I often harass my friend who is the general manager at a major gas station about his prices, and he often jokingly responds that his bonus is based upon how high he can keep his gas prices for specific periods of time.  Needless to say, that upsets me even more and I usually trade a few insults with him about his business methodology.  My friend's business tends to be the price leader in town, signalling the price of gasoline and diesel simply by the price he displays on his billboard.  Other gas stations in town follow his price increase or decrease within a few hours,  except for those who claim to have specialty gasolines with proprietary additives.

Outside of two major national gas stations,  all of the gasoline in town and most of southern Utah comes from the same pipeline about 10 miles west of Cedar City. This brings up another interesting point in that prices for gasoline at the same gas stations (example: Maverick) are about $0.25 higher in Cedar City over that of St. George,  yet all of the gasoline comes from that same pipeline west of Cedar City!  When I ask those gas stations in Cedar City why they are about $0.25 higher than St. George, they claim extra "transportation" charges (but as mentioned, all of the gasoline comes from west of Cedar City), so I feel like I'm getting ripped off....and I hate getting ripped off by a bunch of profiteering clowns.

So what causes price changes in gasoline and other petroleum products?  The Economist does a pretty good high-level review:  http://www.economist.com/blogs/economist-explains/2014/12/economist-explains-4.

My reasons for caring about gasoline and diesel prices are very legitimate.   I work in the transportation industry,  where my yearly local  and regional diesel fuel consumption exceeds 4.5 million gallons a year, so  every penny counts. The Economist web link above, summarized, proposes that supply and demand are not the only determinants of price.   Weather and geographic location also play an important role. Some topics worth reading comments on:  1.)  Does everyone feel gasoline price differences between cities in Southern Utah are reasonable or unfair?  2.)  Does product differentiation (bulk gasoline vs. name brand gasoline) warrant local price differences?  3.) Why the sudden rapid gasoline price drop?  Is there a hidden agenda?