Managerial Economics: Professor Shilpa Aggarwal Professor Amit Bubna

Managerial Economics
Professor Shilpa Aggarwal

Professor Amit Bubna
Digital Headstart Module

June 21 - July 25, 2021
Post Graduate Programme in Management

2021-22
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Table of Contents
S.No Topics Page No.
1 Excellence v Equity 6
2 The Regulators’ Best Friend 10
3 Croissantonomics 14
4 Snow Leopard Takes a Page from the 16

App Store Playbook
5 Net Benefits 19
6 Coconuts Go Upscale, Boosting Price of 24

Conventional Coconut Oil (*)
7 Apparel Industry Model Holds the Key for 25

India’s Job Creation Requirements
8 Profit and Sauce: How Much do D.C. https://www.washingtoncitypaper.com/food/young-

Restaurants Really Make Off of Meals? hungry/article/20989064/profit-and-sauce-how-
much-do-dc-restaurants-really-make-off-of-meals
9 Rent Control Needs Retirement, Not a https://www.bloomberg.com/opinion/articles/2018-

Comeback 02-07/rent-control-needs-retirement-not-a-
comeback
10 Rent Control is Crippling India’s Richest 28

City
11 Is Natural Gas too Cheap to Drill? https://perma.cc/4PJS-ZT5N
3
12 The EpiPen, a Case Study in Health 29
System Dysfunction
13 Why a Media Merger that should go 33

through might not
14 The Evolving Economics of the App (*) 37
15 How Uber could become a Nightmarish https://theweek.com/articles/675434/how-uber-

Monopoly could-become-nightmarish-monopoly
16 Chapter 14 E-book will be shared
19 Counsel of Protection: The Future of 39

Insurance
20 Why Angel Investing is not for You” https://timesofindia.indiatimes.com/business/india-

business/Why-angel-investing-is-not-for-
you/articleshow/48950554.cms
21 Happy-go-lucky young 42
22 The Secret Document That Transformed https://www.npr.org/sections/money/2012/01/20/1

China 45360447/the-secret-document-that-transformed-
china
23 Axing the Bell Curve: Why Microsoft, https://economictimes.indiatimes.com/axing-the-

Ciscodid CTRL+ALT+DEL to this bell-curve-why-microsoft-cisco-did-ctrlaltdel-to-
appraisal tool this-appraisal-tool/articleshow/47456433.cms
24 The Case for Neck Tattoos, According to https://www.theatlantic.com/business/archive/2016

Economists /06/the-economics-of-neck-tattoos/486581/
25 Taken for a Ride: Taxi Drivers 45

Overcharge When Passengers are on
Expenses
4
27 In Manhattan pizza war, price of slice 47

keeps dropping
28 1 Pizza Slice is Back After a Sidewalk 50

Showdown ends Two Parlors’ Price War
29 Schumpeter: Jiopolitics: India’s Richest 52

Man Makes the Business World’s Most
Aggressive Bet
31 Prison Breakthrough: Game Theory 55
32 Free Exchange: Algorithms and Antitrust 59
34 Why, for a Class of Bribes, the Act of https://mpra.ub.uni-

Giving a Bribe should be Treated as muenchen.de/50335/1/MPRA_paper_50335.pdf
Legal
5
SPECIAL REPORT
U N IVER SI T I ES
MARCH 28th 2015
Excellence v equity
Reproduced with permission from the publisher for use only in “Managerial Economics 1_[DHM-I_PGP]” taught by
“Professor Shilpa Aggarwal and Professor Amit Bubna" at Indian School of Business, Hyderabad from "June 21, 2021 - July 25, 2021
6
SPE C I A L R E PO R T
UNIVERSITIES
Excellence v equity
The American model of higher education is spreading. It is good at

producing excellence, but needs to get better at providing access
to decent education at a reasonable cost, says Emma Duncan
IF YOU LEARNED that the top dogs in a particular market were the same
as 100 years ago, you would probably surmise that the business con-
cerned had suffered a century of stagnation. In the case of higher educa-
tion, which has been dominated by American universities since the early
20th century, you would be quite wrong. It grew slowly for the first quar-
ter-century, gathered pace in the middle half and took off in the fourth
quarter. You might then conclude that the top dogs were truly outstand-
ing, or that there was something very odd about the market. In the case of
higher education, you would be right on both counts.
America gave the world the modern research university. The Amer-
ican elite imported the model of the Oxbridge college in the 17th century
to give its rough sons a polish. In
1876 the trustees of the estate of
Johns Hopkins, a banker and rail-
road magnate, decided to use
what was then the largest be-
quest in history to marry up the
Oxbridge college with the re- CON T E N T S
search university, an institution
the Germans had developed at 3 Rankings
the beginning of the 19th century. Top of the class
Both private and public universi-
5 NYU’s Abu Dhabi campus
ties adopted the model, and Har-
A pearl in the desert
vard, Yale, Princeton, Caltech and
the rest of America’s top rank 6 Privatisation
emerged as the prime movers of Mix and match
the world’s intellectual and scien-
7 America
tific life shortly afterwards.
A flagging model
These institutions have pro-
duced a startling number of the 9 Technology
inventions that have made the Not classy enough
world safer, more comfortable
10 Policy options
and more interesting. “Imagine
Having it all
life without polio vaccines and
heart pacemakers…or municipal
water-purification systems. Or
space-based weather forecasting.
ACKNOWLED GMEN T S Or advanced cancer therapies. Or jet airliners,” wrote a bunch of Ameri-
Many people helped the author with ca’s business leaders to Congress in 1995, pleading with the government
this report. As well as those quoted, not to cut research funding to universities. Since then, those institutions
she would like to thank Javier Botero
Alvarez, Doug Becker, Daniel Bell,
have also powered the digital revolution that has improved life in every
Roger Benjamin, Frances Cairncross, corner of the planet.
Matthew Chingos, Ryan Craig, John America led the world, too, in creating mass higher education. That
Crist, Ron Daniels, Andrew Delbanco, transformation was driven in part by the economy’s need for higher
Don Graham, David Greenaway, Kevin
Guthrie, Steven Hill, Colin Hughes,
skills and in part by society’s desire to give the men who fought in the sec-
Barbara Kehm, David Kelly, Bill ond world war a chance to better themselves. America thus became the
Kirby, Jane Knight, Hongbin Li, Lexa first country in the world in which the children of the middle classes
Logue, Wanhua Ma, Francisco went to college, and college became a passport to prosperity.
Marmolejo, Jamie Merisotis, Pratap
Mehta, Tang Min, Ben Nelson, Mary
Given its success, it is hardly surprising that the American approach
Nolan, Driss Ouaouicha, Helen to higher education is spreading. Mass education has taken off all over
A list of sources is at
Perkins, Steven Pinker, Stevan Rolls, the world. The American-style research university is the gold standard, Economist.com/specialreports
Alan Smithers, Josh Taylor, Marijk and competition among nations to create world-class research universi-
van der Wende, Russ Whitehurst, An audio interview with
Ben Wildavsky, David Willetts, Matt
ties as good as America’s is intensifying. Spending on higher education is the author is at
Yale, Rao Yi, Shamoon Zamir and rising: across the OECD, from 1.3% of GDP in 2000 to 1.6% in 2011. Provi- Economist.com/audiovideo/
David Zweig. sion, financing and control everywhere is moving away from the Euro- 1 specialreports
The Economist March 28th 2015 1
7
SPECIA L R EP O R T
UNIVERSITIES
2 pean model, where everything is done by the state, towards the dent numbers grew from 1m to 7m in 1998-2010. In the decade to
American one, in which the private sector provides a large part 2009, Chinese universities hired nearly 900,000 new full-time
of the education and individuals pay for most of their tuition. faculty members. The country now produces more graduates
But just as the American model is spreading around the than America and India combined, and by 2020 aims to enroll
world, it is struggling at home. America’s best universities still do 40% of its young people in universities.
more top-class research than any other country’s; the problem All over the world labour-market changes, urbanisation
lies in getting value for money on the teaching side. Tests suggest and demography have fuelled the boom. The “knowledge econ-
that many students do not learn enough these days. They work omy” has increased the demand for workers with well-fur-
less than they used to. The average performance of America’s nished minds. When people go to live in cities, universities be-
graduates, compared with those of other countries, is low and come more accessible so more people attend them. Rising
slipping. Higher education does not increase social mobility but numbers of young people have fuelled the boom, and—especial-
reinforces existing barriers. At the same time costs have nearly ly in Arab countries—combustible politics increase the need to
doubled in real terms in the past 20 years. The enrolment rate is offer opportunities to teenagers.
falling. Technology offers the promise of making education both In most countries the number of 18- to 24-year-olds will
cheaper and more effective, but universities resist adopting it. shrink in the next half-century, but the demand for higher educa-
This special report will argue that the problems spring in tion seems likely to more than counteract that demographic ef-
part from the tensions at the heart of higher education between fect. Simon Marginson of University College London’s Institute
research and teaching, and between excellence and equity; but of Education reckons that “the tendency to growth of participa-
that technology and better information can help make the teach- tion in higher education appears to have no natural limit” once a
ing side ofthe business more effective. America, having exported country’s GDP per person rises above $3,000.
its model to the world, could learn some lessons from other The laws of supply and demand suggest that this vast in-
countries about how to improve its own system. crease in the number ofgraduates should reduce the return on in-
vestment in a degree, and to some extent that seems to have hap-
How much is too much? pened. By and large, the return to higher education is higher in
“Everybody’s gettin’ so goddam educated in this country poor countries than in rich ones (see chart 2, next page), except in
there’ll be nobody to take away the garbage…You stand on the the Middle East, where high enrolment combined with low
street today and spit, you’re gonna hit a college man,” says Keller growth has led to high graduate unemployment. Harry Patrinos,
in Arthur Miller’s play, “All My Sons”, written in 1946. Higher edu- the lead education economist at the World Bank, reckons that
cation in America started to spread from the elite to the masses as globalisation has increased the chances for well-qualified peo-
early as the 19th century, with the establishment ofthe land-grant ple in poor countries of getting a good job.
universities, but got its biggest boost with the 1944 GI bill that In the rich world, even though nearly half of young adults
paid servicemen to go to college. are graduates and numbers are continuing to rise, the graduate
What happened in America then happened in Europe and premium (the wage difference between those with and those
Japan in the 1960s and 1970s, in South Korea in the 1980s, and is without degrees) has remained high enough for it to be worth go-
now happening the world over. Student numbers are growing ing to university. Part of the explanation may be credentialism in
faster than global GDP. So hungry is the world for higher educa- some rich countries. The more people have degrees, the more
tion that enrolment is growing faster than purchases of that ulti- employers will insist on recruiting graduates. In many countries
mate consumer good, the car (see chart 1). The global tertiary en- jobs such as teaching and nursing, which did not require a degree
rolment ratio—the proportion of the respective age cohort 30 years ago, are now reserved for graduates. When just a small
enrolled in university—increased from 14% to 32% in the two de- elite went to university, plenty of decent jobs were available to
cades to 2012; the number of countries with an enrolment ratio those with only secondary schooling. That is no longer true.
ofmore than halfwent up from five to 54 over the period. Sub-Sa- But changes in the labour market also help to explain the
haran Africa is the only part of the world where “massification” ever-growing pressure to get a degree. Automation has created
is not much in evidence yet. what Claudia Goldin and Lawrence Katz, two Harvard academ-
Some countries, such as South Korea, where pretty much ics, have called “a race between education and technology”
everybody goes to university, have probably reached saturation which only those with plenty of education will win. As automa-
point. Others are still seeing phenomenal growth. In China, stu- tion depresses wages at the bottom of the pile, inequality grows,
and the more unequal society becomes, the riskier it is not to
have a degree. For all the stories of university dropouts who be-
came software billionaires, non-graduates have little chance of
Never mind the car, get the degree 1
joining the ranks of the prosperous few.
Global, 1995=100 As first degrees become standard, more people are getting
300
postgraduate qualifications to stand out from the crowd. In both
Tertiary enrolments America and Britain, 14% of the adult workforce have a postgrad-
New car registrations 260 uate degree; and despite the increase in supply, the postgraduate
GDP per person* premium has increased in both America and Britain, especially
220 since 2000. There was a time, points out Stephen Machin, profes-
180 sor of economics at University College London, when a post-
graduate degree depressed wages; but that was when maths
140 PhDs worked mainly in academia, not in the financial sector.
Although individuals enjoy decent returns to their invest-
100
ment in higher education, it is less clear that society as a whole
60 does. The big question is whether the graduate premium is the
1995 97 99 2001 03 05 07 09 11 12 consequence of higher productivity or of establishing a pecking
Sources: UNESCO; Economist Intelligence Unit; The Economist *At 2005 $ order. If universities increase people’s productivity, then society 1
2 The Economist March 28th 2015
8
SPE C I A L R E PO R T
UNIVERSITIES
thus quite different from the continental European one, which

Poorer countries, richer returns 2
(aside from France’s grandes écoles) is a lot less selective and more
Average increase in earnings for every additional year of tertiary education homogeneous.
1970-2013, % Now competition and stratification are spreading. Accord-
8 10 12 14 16 18 20 22
Sub-Saharan Africa
ing to Ellen Hazelkorn, author of “Rankings and the Reshaping of
Higher Education”, there are around 150 national rankings
South Asia
around the world. But thanks to globalisation and the growth in
Latin America international student flows, attention has shifted from national
East Asia to international rankings.
World Governments want top-class universities because the mod-
High income
ern economy is driven by human capital. The goal is to nurture
people who will create intellectual property and clusters of high-
Middle East/North Africa
tech companies similar to those around Stanford and Cam-
Europe/Central Asia bridge. A great research university is not a sufficient condition for
Source: World Bank creating such a cluster, says Jean-Lou Chameau, former president
of Caltech and now president of Saudi Arabia’s King Abdullah
University of Science and Technology (KAUST); but “you can’t do
2 should invest in having more graduates, but if they are merely a it without having more than one great university around.”
mechanism for signalling to employers that graduates are clev- Increasing reliance on tuition fees is another reason for
erer than non-graduates, then it should not. And since little effort more competition. Students “want to be sure that they have got a
goes into measuring whether universities actually educate peo- big global brand on their certificate that’s going to be a passport
ple—a matter to which this special report will return—society to their future”, says Phil Baty, editor-at-large of Times Higher Edu-
does not know whether investing in education is worthwhile. cation. America’s state universities, he says, used to show little in-
Even ifthe social returns on investment in higher education terest in the international market. Now that their budgets have
were poor, there would be a strong political argument for the been cut, he sees a lot more of their presidents.
state to provide access to it. If people need a degree to get ahead,
then democratic governments must offer everybody with suffi- The qualities that matter
cient brains a chance of getting one. The market alone will not Nian Cai Liu of Shanghai Jiao Tong University started the
lend money at a reasonable rate to students who can provide no international race in 2003. “My university was one of the first
security, so even governments that rely heavily on private fi- that the government picked to become a world-class university. I
nance tend to offer loans to students. decided to benchmark us against those in the West,” he says. He
But access to higher education is not binary. Some provi- came up with six indicators of research excellence, used them to
sion is excellent and some is not, and the returns to low-quality rank the world’s top universities and published the result. It
higher education are poor. So the ambition expressed by pretty caused uproar in countries that did badly—particularly Ger-
much all governments everywhere to widen access to good- many, birthplace of the research university. Times Higher Educa-
quality higher education conflicts with another global force: tion and another company, QS, followed with their own rank-
competition to create the best universities. 7 ings. Shanghai focuses purely on research; THE and QS also look
at things like staff-student ratios and reputation.
American institutions take the top slots in the Shanghai
Rankings rankings (see chart 3, next page), with Britain as the runner-up.
Private universities dominate, though some state universities
Top of the class (such as California’s) are also excellent. But in relation to their
population size, the Nordic countries, Switzerland and the Neth-
erlands do best, and there is movement in the rankings. Emerg-
ing markets are on the rise; America’s state universities and Brit-

ain’s second tier are slipping.
The rankings matter because of their impact not just on the
amour propre of politicians and university presidents, but also
Competition among universities has become intense
on how universities are run. “Rankings force institutions and
and international governments to question their standards. They are a driver of be-
AS JAMIL SALMI leaves the stage at a Times Higher Educa- haviour and of change,” says Professor Hazelkorn.
tion conference in Qatar, he is mobbed by people pressing One way of improving your rankings is to set up a top-class
their cards on him. As a former co-ordinator of the World Bank’s research outfit from scratch and hire a former head of Caltech to
tertiary-education programme and author of a book entitled run it, as Saudi Arabia has done with KAUST. But not many coun-
“The Challenge of Establishing World-Class Universities”, he is tries can afford the $20 billion endowment that KAUST is said to
the white-haired sage of the world-class university contest. And have received from the late King Abdullah. An alternative luxury
he is greatly in demand, for the competition to climb the interna- model is to get a top-class foreign university to set up on your soil.
tional rankings has become intense. The United Arab Emirates has got NYU (see box at the end of this
Higher education in America has long been a strongly com- section), which has also set up a campus in Shanghai, w ale
petitive business. Students and university presidents alike keen- has a partnership with the National University of Singapore.
ly watch the rankings produced by the US News and World Re- Qatar is doing something different again. Education City is
port. Such rankings encourage stratification. One of the metrics is a collection of eight foreign universities in grand new buildings
the proportion of students a university turns away, which en- on the outskirts of Doha, each of which teaches a subject the gov-
courages selectivity. That in turn encourages differentiation be- ernment considers useful to the country. Texas A&M does engi-
tween better and worse universities. The American model is neering (for the gas industry); Northwestern does journalism (for 1
The Economist March 28th 2015 3
9
5/26/2020 Economics focus - The regulators' best friend? | Finance & economics | The Economist
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Finance & economics Mar 31st 2005 edition
Economics focus
The regulators' best friend?

Europeans embrace the logic of cost-bene t analysis just as some Americans grow
suspicious of it
Mar 31st 2005
ACCORDING to one of the European Commission's pettifogging regulations, cucumbers sold in the
single market cannot be too curvy. According to another proposal, packets of co ee and chicory must
conform to weights speci ed in Brussels.
ADVERTISEMENT
The rst regulation is largely apocryphal, a myth propagated by Euro-sceptic

newspapers in Britain and debunked by the commission's team of counter-
spinners. But the second regulation is quite real. It was one of several examples
of regulatory overkill lambasted by Günter Verheugen, a vice-president of the
commission,Reproduced in a speech last month. Mr Verheugen wants to withdraw such
with permission from the publisher for use only in “Managerial Economics 1_[DHM-I_PGP]” taught by
dl “Professor lShilpaiAggarwal andi Professor

lifAmit Bubna"
h at Indian School
d ofbj
https://www.economist.com/finance-and-economics/2005/03/31/the-regulators-best-friend
Business, Hyderabad from "June 21, 2021 - July 25, 2021
l lid 1/7
10
needless regulations, simplify others and subject new proposals to “solid cost-
bene t analyses”.
Cost-bene t analysis—which typically quanti es the attractions and drawbacks
of a regulation, converts them into dollars or euros, then tots them up—sounds
both dull and innocuous. But its ndings can be revealing. For example, Robert
Hahn, a scholar at the American Enterprise Institute in Washington, DC,
calculates that over 40% of American regulations impose costs that outweigh
the bene ts they confer*. What might a similar review of the European Union's
regulatory rule-book reveal? How many of the 90,000 pages of the acquis
communautaire might be safely torn out, to the net bene t of the union?
The ndings of Mr Hahn and other cost-bene t analysts in America have not
passed unchallenged, however. A number of critics doubt the worth of the
techniques and distrust the motives of the practitioners. They say that America's
current administration is guilty of “regulatory underkill” and that cost-bene t
analysis is its weapon of choice.
Whether or not this is fair to President George Bush's administration, is it fair to

cost-bene t analysis? Is the method fatally awed and intrinsically anti-
regulatory? The Centre for Progressive Regulation (CPR), a think-tank that
shelters many sceptics, thinks so. It objects to two features in particular: the
“translation of lives, health, and the natural environment into monetary terms”
and “the discounting of harms to human health and the environment that are
expected to occur in the future”†.
ADVERTISEMENT
Those who question cost-bene t analysis doubt that a price tag can ever be put
on life. How could one seriously count the cost of death and injury caused by
road accidents, for example? But, as Robert Frank, an economist now at Cornell
University, has pointed out, even the ercest critics do not get their brakes
checked every morning. They have more pressing uses of their time. Road safety,
then, does have an opportunity cost, and an economist will want to know what
it is. Thus, when the CPR accuses economists of “pricing the priceless”, most
economists would plead guilty as charged. They devote considerable e ort, and
not a little ingenuity
“Professor Shilpa Aggarwalto discovering
and Professor Amit Bubna" at the implicit
Indian School
https://www.economist.com/finance-and-economics/2005/03/31/the-regulators-best-friend
price
of Business, offrommany
Hyderabad things
"June 21, 2021 - July 25, that
2021 are 2/7
11
not a little ingenuity, to discovering the implicit price of many things that are
not traded directly in arm's-length markets.
As the critics allege, cost-bene t analysis works like a kind of universal solvent.
It breaks qualities down into quantities, di erences of kind into di erences of

degree, gold into base metal. A safe childhood, a breathtaking view, a clean pair
of lungs—all are reduced to fungible “dollar-equivalents”. In doing so, the
method forces into the open trade-o s that many would rather not face too
squarely. Should taxpayers' money be devoted to keeping grandmother alive for
an extra month in an intensive-care unit? Or would it be better spent reducing
the risk of asthma faced by deprived children in the polluted inner city? Such
comparisons may seem crass. But they are democratic.
The less sweet hereafter

Accused of pricing the priceless, economists are charged with under-pricing the
future as well. Most practitioners of cost-bene t analysis assume that gains in
the hereafter are worth less today than gains in the here-and-now. They
discount future bene ts, including lives saved, in much the same way that they
discount future pro ts or costs.
“ Those who question cost-beneﬁt analysis doubt that a price

tag can ever be put on life
But are lives saved 12 months' hence really worth less than lives saved this year?
To say so, the critics argue, is to make a false analogy between nancial
resources, which can be borrowed from, or invested for, the future, and human
life, which cannot. By discounting future lives, economists also further an anti-
regulatory agenda, the critics allege. After all, the costs of most health and safety
regulations arrive upfront. The bene ts can take time to emerge.
ADVERTISEMENT
Discounting future lives is indeed awkward, and some economists have fretted
about it for decades. But it is not necessarily anti-regulatory. If regulators
discounted costs, but not lives saved, they would defer action inde nitely, Mr
Hahn points Reproduced
out. The bene fromtsthewould
with permission publisher for be the
use only sameEconomics
in “Managerial if they waitedtaught
1_[DHM-I_PGP]” a year
by (or a
https://www.economist.com/finance-and-economics/2005/03/31/the-regulators-best-friend 3/7
12
decade, for that matter) but the costs would always be less.
Cost-bene t analysis does not always argue for less regulation. It weeds out
regulations that do not pay their way, but it can also identify measures not on
the statute books, that should be. For example, de brillators installed in
workplaces might be a cost-e ective way to save victims of heart attacks. The
White House's O ce of Management and Budget has sent about a dozen letters
to the agencies it oversees prompting them to investigate such potentially
bene cial regulations.
Fundamentally, it is not “anti-government” to weigh the costs of public action.

On the contrary, the “regulatory excess” Mr Verheugen sees in the EU has
doubtless damaged the prestige of Brussels. Some regulatory circumspection,
nudged by cost-bene t sheepdogs, might even rehabilitate it. If the EU had not
mandated the weights of chicory packets, perhaps people would not so readily
believe that it regulates the curvature of cucumbers.
*“In Defence of the Economic Analysis of Regulation”. American Enterprise

Institute
†“Cost-Bene t Analysis”. Available at www.progressiveregulation.org
This article appeared in the Finance & economics section of the print edition under the headline "The
regulators' best friend?"
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5/26/2020 Bakeries - Croissantonomics | Business | The Economist
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Business Aug 27th 2015 edition
Bakeries
Croissantonomics
Lessons in managing supply and demand for perishable products
Aug 27th 2015

NEW YORK
AIRY croissants, rich chocolate-chip biscuits, wedges of succulent cake—the

goods at the City Bakery, in Manhattan, look delicious. Maury Rubin, its
founder, studied in France. But his best creations are distinctly American:
pretzel croissants (surprisingly tasty), and recipes for making money.
Mr Rubin is among those bakers who revere traditional methods but want a fat
pro t. However, a good bakery is bad business. Flour is cheap but organic butter,
which makes up half a croissant, is not. Central locations for outlets are
expensive to rent. In all, it costs Mr Rubin $2.60 to make a $3.50 croissant. If he
makes 100 and sells 70, he earns $245 but his costs are $260. Since he refuses to
sell leftovers—all goods are sold within a day—he loses money. “Welcome to the
bakery business,” Mr Rubin says.
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https://www.economist.com/business/2015/08/27/croissantonomics 1/5
14
5/26/2020 Bakeries - Croissantonomics | Business | The Economist
The obvious x is to raise prices. But Mr Rubin says shoppers bristle when the
cost of baked goods passes a certain threshold. He has two main solutions. First,
don’t be just a bakery. He also sells fancy salads and sandwiches to o ce
workers, which have higher margins.
Second, use data to cut waste. Mr Rubin studies sales to discern trends in
demand, then adjusts supply accordingly. There are no brownies or carrot cake
on Mondays or Tuesdays—people don’t buy rich desserts after decadent
weekends. He watches the weather closely, as demand melts in the rain. He
keeps an eye on school calendars, to bake less when children are away. He bakes
more after the fasting of Yom Kippur, when demand from Jewish customers
picks up. And each day, after the breakfast rush, he ne-tunes supply by
checking sales every 60-90 minutes. Trays of pastries are ready to be baked, but
nothing goes into the oven until the numbers are in.
Having no croissants at the end of the day is a sign of success. Late one recent
afternoon, his counter o ered trios of fruit on triangles of rice paper, cooked in
sugar. This dessert looks lovely and is cheap to make. But Mr Rubin will sell only
a few, as he makes them expensive: they are there in part to make his counters
look pretty and full, to draw in co ee-drinkers at the end of their working day.
Such strategies have helped the City Bakery survive since 1990. It now has seven
smaller shops in New York and seven outposts in Japan, with plans to open in
Dubai.
This article appeared in the Business section of the print edition under the headline "Croissantonomics"
More from Business
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15
Snow Leopard Takes a Page From the App Store
Playbook
Publication info: New York Times (Online) , New York: New York Times Company. Jun 11, 2009.
ProQuest document link
ABSTRACT (ENGLISH)
Apple intends to charge current Leopard owners $29 for the Snow Leopard version. The company sells millions of
copies of Mac OS X. So why on earth would it leave so much money on the table?
FULL TEXT
Apple announced and demonstrated all kinds of things this past Monday at its developers’ conference: upgraded
laptops, a new iPhone, a new iPhone software suite for all iPhone owners, its new Mac OS X 10.6 “Snow Leopard”
operating system, and so on. Lots of goodness, for sure. But to me, one of the most mind-blowing revelations was
a single statistic: 29.
That’s dollars, and it’s how much Apple intends to charge current Leopard owners for the Snow Leopard version
when it goes on sale in September. That’s $29, rather than the $130 Apple traditionally charges for new Mac OS X
versions.
Apple sells millions of copies of Mac OS X. So why on earth would it leave so much money on the table? There are
two official reasons, one semi-official reason–and one that may be the real reason.
Official Reason 1: Snow Leopard wasn’t intended to be a huge upgrade. From the beginning, it was meant to be an
optimization of the existing Mac OS X: cleaned up, faster, smaller, more polished.
Which I think is an outstanding goal; who can sustain “200 new features!!!!” forever?
Besides, come on–think of your current computer or phone. Which, really, would you prefer: more features, or
better speed and reliability?
Microsoft is essentially pursuing the same mission with its new Windows 7. It’s basically “Windows Vista, refined.”
The beta versions are so much better than Vista, it’s not even funny.
Celebrate this trend, people. It won’t last.
And sure enough, Snow Leopard really is faster–and smaller. Yes, smaller: The OS occupies only half the disk
space of the previous version, saving you a cool 6 gigabytes. That’s a first in the history of OS upgrades.
Apple says that everything is faster, too: Snow Leopard installation is 45 percent faster, shutting down is 75
percent faster, waking up 50 percent faster, 55 percent faster joining Wi-Fi networks, and so on. (These are all
Apple’s measurements, and they’re all “up to,” but still.)
Truth is, though, Apple’s programmers couldn’t just sit by and leave their ideas on the table; a healthy number of
new features did, in fact, sneak into Snow Leopard. You can edit videos (without having to buy the $30 QuickTime
Pro package, as before) right at the desktop, then upload them directly to YouTube or MobileMe. Video chats
require only a third as much bandwidth, so even DSL people can get in on the act. You can copy a single column of
text out of a PDF without including the columns on either side. And on and on.
So much for Reason #1.
Reason #2 is something like, “Well, we wanted Mac OS X to be affordable, so we can bring its goodness to as many
people as possible.”
Well, sure, but didn’t you want your OTHER Mac OS X versions to reach as many people as possible?
So much for Reason #2.
“Professor Shilpa Aggarwal
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When pressed, an Apple product manager admitted that there might be a third reason for the pricing: “Well, we
wanted to put a little pressure on our friends up North.”
That would be Microsoft.
I’m not sure what kind of pricing pressure Apple could put on Windows 7 at this point; Microsoft’s plans are surely
in stone, since Windows 7 ships in October. And Microsoft has also decided, once again, to pursue its disastrous
and confusing plan to ship Windows in five or more different versions, each with different features (sigh). Since
Microsoft’s bread and butter is corporations, who buy Windows by the pallet, Apple’s pricing gesture must seem
like little more than a gnat.
But there’s a final possible reason for Snow Leopard’s $29 thing: the App Store Effect.
When programmers write iPhone programs, Apple encourages them to set a price that’s really low–like free, or, if
you insist, $1. As a result, the huge majority of programs in that store are impulse buys. Nobody blinks at $1; it’s
less than a soda, and it’s something you’ll have for a long time. Price is virtually no barrier at all.
That’s quite a bit different from any other software category. Even shareware usually starts at $20. There’s a huge
psychological difference between $1 and $20.
The App Store Effect says this: if you cut a software program’s price in half, you sell far more than twice as many
copies. If you cut it to one-tenth, you sell far more than 10 times as many. And so on.
It’s a little counter-intuitive, but this principle has paid off beyond anyone’s wildest dreams. The numbers are
staggering: as you’ve probably heard, iPhone/iPod Touch fans downloaded 1 billion apps within 9 months. Some
iPhone programmers have become millionaires within months–yes, selling $1 software–because of this crazy
math. $20 may sound like more than $1, but not when 1,000 times more people buy at $1.
I can’t help wondering if Apple has the App Store effect in the back of its mind with Snow Leopard. If the previous
Mac OS X version sold for $130, then Apple would need five times as many Snow Leopard sales to equal the
revenue.
The App Store Effect says: Oh, baby, that’s a no-brainer.
DETAILS
Subject: Operating systems; Zoos; Software upgrading; Software reviews
Company / organization: Name: Microsoft Corp; NAICS: 334614, 511210; Name: YouTube Inc; NAICS: 519130
Publication title: New York Times (Online); New York
Publication year: 2009
Publication date: Jun 11, 2009
Section: technology
Publisher: New York Times Company
Place of publication: New York
Country of publication: United States, New York
Publication subject: General Interest Periodicals--United States
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Free exchange
Finance & economics

Mar 9th 2013 edition
Net benefits
How to quantify the gains that the internet has brought to consumers
19
Mar 9th 2013 WHEN her two-year-old daughter was diagnosed with cancer in 1992, Judy Mollica spent hours
in a nearby medical library in south Florida, combing through journals for information about
her child’s condition. Upon seeing an unfamiliar term she would stop and hunt down its
meaning elsewhere in the library. It was, she says, like “walking in the dark”. Her daughter
20
recovered but in 2005 was diagnosed with a different form of cancer. This time, Ms Mollica was
able to stay by her side. She could read articles online, instantly look up medical and scientific
terms on Wikipedia, and then follow footnotes to new sources. She could converse with her
daughter’s specialists like a fellow doctor. Wikipedia, she says, not only saved her time but gave
her a greater sense of control. “You can’t put a price on that.”
Measuring the economic impact of all the ways the internet has changed people’s lives is
devilishly difficult because so much of it has no price. It is easier to quantify the losses
Wikipedia has inflicted on encyclopedia publishers than the benefits it has generated for users
like Ms Mollica. This problem is an old one in economics. GDP measures monetary
transactions, not welfare. Consider someone who would pay $50 for the latest Harry Potter
novel but only has to pay $20. The $30 difference represents a non-monetary benefit called
“consumer surplus”. The amount of internet activity that actually shows up in GDP—Google’s
ad sales, for example—significantly understates its contribution to welfare by excluding the
consumer surplus that accrues to Google’s users. The hard question to answer is by how much.
Shane Greenstein of Northwestern University and Ryan McDevitt of the University of Rochester
calculated the consumer surplus generated by the spread of broadband access (which ought to
include the surplus generated by internet services, since that is why consumers pay for
broadband). They did so by constructing a demand curve. Say that in 1999 a person pays $20 a
month for internet access. By 2006 the spread of broadband has lowered the real price to $17.
That subscriber now enjoys consumer surplus of $3 per year, even as the lower price lures more
subscribers. The authors reckon that by 2006 broadband was generating $39 billion in revenue
and $5 billion-$7 billion in consumer surplus a year. Based on its share of online viewing, Mr
Greenstein thinks Wikipedia accounted for up to $50m of that surplus.
Such numbers probably understate things. The authors’ calculations assume internet access
meant the same thing in 2006 as it did in 1999. But the advent of new services such as Google
and Facebook meant internet access in 2006 was worth much more than in 1999. So the surplus
would have been bigger, too.
More important, consumers may not incorporate the value of free internet services when
deciding what to pay for internet access. Another approach is simply to ask consumers what
they would pay if they had to. In a study commissioned by IAB Europe, a web-advertising
industry group, McKinsey, a consultancy, asked 3,360 consumers in six countries what they
21
would pay for 16 internet services that are now largely financed by ads. On average, households
would pay €38 ($50) a month each for services they now get free. After subtracting the costs
associated with intrusive ads and forgone privacy, McKinsey reckoned free ad-supported
internet services generated €32 billion of consumer surplus in America and €69 billion in
Europe. E-mail accounted for 16% of the total surplus across America and Europe, search 15%
and social networks 11%.
Another way to infer consumer surplus is from the time saved using the internet. In a paper
partly funded by Google, Yan Chen, Grace YoungJoo Jeon and Yong-Mi Kim, all of the University
of Michigan, asked a team of researchers to answer questions culled from web searches. The
questions included teasers like: “In making cookies, does the use of butter or margarine affect
the size of the cookie?” On average, it took participants seven minutes to answer the questions
using a search engine, and 22 minutes using the University of Michigan’s library. Hal Varian,
Google’s chief economist, then calculated that those savings worked out to 3.75 minutes per day
for the typical user. Assigning that time a value of $22 per hour (the average wage in America),
he reckons search generates $500 of consumer surplus per user annually, or $65 billion-$150
billion nationally.
Twitter: the defence

Yet another technique is to assign a value to the leisure time spent on the web. Erik
Brynjolfsson and Joo Hee Oh of the Massachusetts Institute of Technology note that between
2002 and 2011, the amount of leisure time Americans spent on the internet rose from 3 to 5.8
hours per week. The authors conclude that in so far as consumers must have valued their time
on the internet more than the alternatives, this increase must reflect a growing consumer
surplus from the internet, which they value at $564 billion in 2011, or $2,600 per user. Had this
growth in surplus been included in GDP, it would have raised economic growth since 2002 by
0.39 percentage points on average.
These are impressive figures, but they also merit scepticism. Would consumers really pay
$2,600 for the internet? Shouldn’t other free leisure activities, such as watching television or—
heaven forbid—playing with your children, have just as much value? And in other ways the
internet subtracts value: the productivity destroyed by incessant checking of Twitter, the
human interactions replaced by e-mail. Ms Mollica says people in hospital waiting rooms used
to develop a camaraderie rooted in their shared experiences. “But now everyone stares into
their phone because they’re texting or e-mailing.”
Sources
22
Publications by Shane Greenstein and Ryan McDevitt: "The Global Broadband Bonus:
Broadband Internet’s Impact on Seven Countries," in The Linked World: How ICT Is
Transforming Societies, Cultures and Economies, published by the Conference Board, 2011.
"The Broadband Bonus: Accounting for Broadband Internet's Impact on U.S. GDP," NBER
Working Paper #14758, 2009. “Measuring the Broadband Bonus in 20 OECD Countries,” OECD
Digital Economy Papers, No. 197, 2012.
Household Demand for Broadband Internet Service: Final report to the Broadband.gov Task
Force Federal Communications Commission. Gregory Rosston, Scott J. Savage, Donald M.
Waldman, February, 2010.
"Consumers driving the digital uptake: The economic value of online advertising-based
services for consumers," study conducted by McKinsey & Co., commissioned and published by
IAB Europe, September 2010.
"A Day without a Search Engine: An Experimental Study of Online and Offline Searches," Yan
Chen, Grace YoungJoo Jeon, Yong-Mi Kim, 2012.
“Valuing Consumer Goods by the Time Spent Using Them: An Application to the Internet,”
Austan Goolsbee and Peter Klenow, American Economic Review (Papers and Proceedings), May
2006.
"The Attention Economy: Measuring the Value of Free Goods on the Internet," Erik
Brynjolfsson, and JooHee Oh, July, 2012 (draft).
"Economic Value of Google," Presentation by Hal Varian, Chief Economist, Google

Economist.com/blogs/freeexchange
This article appeared in the Finance & economics section of the print edition under the headline "Net benefits"
23
Markets
Coconuts Go Upscale, Boosting Price of Conventional Coconut Oil; Coconut water and sugar make a splash, reducing supply for use as ingredients in less sexy products like dish
detergent
By Lucy Craymer
691 words
7 April 2016
22:14
The Wall Street Journal Online
WSJO
English
Copyright 2016 Dow Jones & Company, Inc. All Rights Reserved.
Coconut oil prices have soared nearly 20% in a month, largely because of the growing popularity of specialty products such as coconut water.
In supermarkets, coconuts are being sold with pull tabs to be drunk like beer. Coconut sugar is being touted as healthier for diabetics. And U.S. actress Gwyneth Paltrow is among celebrity coconut fans, once revealing she swishes around virgin coconut oil for oral
health and whitening her teeth.
Such trendy products come from young green coconuts, fresh coconut and the trees' flowers. That leaves less dried coconut—copra—to be made into the conventional oil that is used in everything from dish detergent to medicine.
The result has been a jump in prices since February, to an average in March of $1,448 a metric ton, according to World Bank data released late Wednesday. That is more than 50% higher than the average price in 2013.
Meanwhile, the interest in specialty products is only expected to grow.
Global consumption of coconut water jumped 13% from 2014 to 2015, following a 24% increase the previous year, according to data from beverage research firm Canadean.
The trend toward specialty products is being felt throughout the coconut industry, suggesting that prices for conventional oil aren't likely to drop significantly in the near future, analysts say.
Farmers in the Philippines, the world's largest producer of coconut oil, for example, are increasingly being asked to harvest younger coconuts, as middlemen chase after the higher prices they net over fully mature ones.
In the Philippines, coconut-water exports more than doubled to 66.3 million liters and virgin coconut oil was up 61% to 34,227 metric tons in the 11 months to November 2015, according to the latest available data from the United Coconut Associations of the
Philippines.
In the same period, copra and coconut-oil exports fell slightly, and the industry group predicts they will drop 6.9% to 2.1 million metric tons in 2016 from last year.
“Increase in cost of production narrowed down margins, and the industry players naturally moved towards high-margin [coconut] products," said Maduka Perera, owner of Ceylon Tropics, a coconut business in Sri Lanka.
Meanwhile, supplies will continue to feel pressure.
The Philippines is still reeling from the 2013 Supertyphoon Haiyan, which damaged or destroyed 44 million coconut palms—about 15% of its trees. It will take at least until next year for new trees to bear fruit.
And Indonesia, the world's top harvester of coconuts, hasn't undertaken a program to replace old coconut trees that because of age are seeing less fruit, meaning plantations are producing less nuts. The government is instead focused on expanding rice, corn and
soybean production.
Manufacturers aren't likely to stampede to coconut-oil substitutes, analysts say. That is because substituting with, for example, petroleum-based fatty alcohols can disrupt product formulas and threaten a product's branding as being environmentally friendly. Palm-
kernel oil, which is produced from the seed of the oil palm, may get a boost instead.
James Fry, chairman at agribusiness analyst firm LMC International Ltd., sees some relief coming in the fourth quarter of this year, as the worst of the El Niño phenomenon since 1997-1998 has passed.
The current El Niño has reduced rainfall in Southeast and Southern Asia, putting stress on coconut palms and reducing the amount of fruit on the tree.
An El Niño occurs when winds in the equatorial Pacific slow down or reverse direction. That causes waters to warm over a vast area, which in turn can upend weather around the world.
PT Cargill Indonesia, which crushes copra into oil, described copra supplies as the worst he has seen in 16 or 17 years, largely because of the high demand for whole coconuts.
Cargill is “struggling big time" to get hold of copra, said Satria Wardaja, Cargill's communications manager.
24
Apparel industry model holds the key for India’s job creation requirements ............................................................ 2
Page 1 of 3 © 2021 Factiva, Inc. All rights reserved.

25
Apparel industry model holds the key for India’s job creation requirements
Policy
Apparel industry model holds the key for India’s job creation requirements
946 words
16 January 2018
The Economic Times
ECTIM
English
(c) 2018 The Times of India Group. All rights reserved.
By Arvind PanagariyaNothing explains India’s job creation challenge better than a comparison between
Reliance Industries (RIL) and Shahi Exports. While RIL is a familiar name to nearly all, most readers would
not have heard of Shahi Exports. If we are to solve our jobs problem, this needs to change.The RIL reports
$110 billion in assets and 250,000 employees across its various ventures. Therefore, it employs five workers
for each $2.2 million in assets. Shahi Exports, which is India’s largest apparel exporter, has assets worth
$185 million and employs 106,000 workers in its apparel factories. Therefore, it employs 1,260 workers for
every $2.2 million in assets. For the same investment, Shahi Exports creates 252 times the jobs that RIL
does.Jobs that Shahi Exports creates are what India needs most today. Its factories can take someone with
fifth-grade education and impart necessary training in just six weeks. On average, these workers earn Rs
15,000 a month.
About 60% of Shahi Exports employees are women. If we could rapidly multiply what Shahi Exports does, we
could begin expanding formal-sector jobs rapidly — especially for women.Apparel requires modest
investment per job and the demand for it is there. In 2015, the apparel export market was $465 billion. India
exported $18 billion of it compared with China’s $175 billion. High wages are now forcing China to withdraw
from this market. From $187 billion in 2014, its apparel exports have fallen to $158 billion in 2016. India must
take the space China is vacating.To understand what needs to be done, we must ask why India has not done
well in this sector to date. For decades, our policies reserved apparel for production by small-scale
enterprises. These enterprises were too small and their product quality too low to succeed big in the export
markets. Beginning in 1973, India’s investment policy confined large firms and big industrialists to investing
exclusively in a set of listed 'core’ industries, which were all highly capital intensive.As a result, over time, our
big industrialists have become hardwired into believing that sectors such as apparel are not for them.
Although the core industries regulation ended in 1991, and small-scale industries reservation was
withdrawnmore than a decade ago, investment in apparel remains entirely off the radar screens of India’s big
industrialists and their children.Grab That Garb One way to cut this Gordian knot is to encourage the global
apparel firms exiting China to locate in India, instead of Bangladesh and Vietnam. These firms have the
technology and management know-how to operate on large scale. They also have links to global markets.
Once a few anchor firms locate in India, many more local Shahi Exports firms would emerge.An important key
to making India an attractive destination for global firms is to create greater labour market flexibilities. This is
something that has characterised all successful exporters of labour-intensive products such as apparel. We
need better balance between the interests of those who already have formal sector jobs, and those who seek
them. When protection to existing formal sector workers is extra-high, the incentive to hire more of them turns
low. Firms choose to stay small, operate informally and, thus, escape costly labour regulations.Thus,
consider, say, the minimum wage. If you live in Delhi, you are likely to think that a minimum wage of Rs
15,000 per month is only fair. And yet, such a wage will drive many labourintensive, formal sector firms out of
business. Their employees would then end up in the informal sector. Reports that the Wage Code currently
under consideration by Parliament may hike the national minimum wage to Rs 18,000 a month have left
many formal sector firms very nervous.Exports, especially in the apparel industry, face very tight just-in-time
delivery schedules. Therefore, rapid movement of imported inputs into the country and of export products out
of it are essential. This requires concerted effort at trade facilitation.Unnecessary clearance requirements
need to be eliminated and the turnaround time of ships at ports needs to be brought down to a few hours as
in Hong Kong and Singapore. Coastal Employment Zones (CEZs) offer a convenient avenue to bringing
about these changes expeditiously within limited geographical areas.Competitiveness also requires that all
indirect taxes paid by apparel exporters, including those on products outside the goods and services tax
(GST) net, such as petrol, be expeditiously reimbursed in full. All competing countries follow this practice and
the World Trade Organisation rules permit it as well.The exchange rate has been a particularly sensitive issue
for apparel exporters due to low profit margins on which they operate. Foreign investment and remittance
inflows, which chase rupees, make them expensive.Sew That’s Hewed And an unduly expensive rupee
makes Indian goods uncompetitive in the global marketplace. Therefore, the Reserve Bank of India (RBI)
needs to manage foreign exchange inflows such that the rupee does not appreciate unduly.While apparel is
the major sector where formal sector jobs can be expanded rapidly, what I have said above applies to a wide
range of light manufactures including footwear, furniture, toys, kitchen utensils, paper, stationery, umbrellas
and numerous other items of daily use. Therefore, the scope for creating good jobs for workers with limited
26
skills through increased share in the global markets for these products is very substantial. It is difficult to think
what alternative paths could advance this objective more effectively.(The writer is professor, Columbia
University, US)
For Reprint Rights: timescontent.com
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27
MINT, Opinion
Rent control is crippling India's richest city
Livemint
1016 words
14 February 2018
Mint
HNMINT
English
Copyright 2018. HT Media Limited. All rights reserved.
New Delhi, Feb. 14 -- Next to bombing," Swedish economist Assar Lindbeck wrote in 1971, "rent control seems in many cases to be the most efficient technique so far known for destroying cities." The view from the World Trade Centre in the enclave of wealth that is
Mumbai's island city is instructive for understanding what he meant. Expensive residential high-rises-or what pass for high-rises in India-ring it in one direction. The Ambedkar Nagar slum sprawls in the other. It is a dichotomy repeated all over Mumbai. NITI Aayog
chief executive officer Amitabh Kant summed it up pithily earlier this week. It's about liveability, not wealth, he tweeted in response to Mumbai being listed in the latest New World Wealth report as the 12th richest city globally.
The city's private wealth is a hefty $950 billion. But according to last year's Mercer Quality of Living index, it also ranks a poor 154th among global cities when it comes to quality of life. There are several reasons for this: poor infrastructure, deficient urban planning,
inadequate public transport systems. One of the most important, however, feeding into many of the other problems, is the lack of affordable and accessible rental housing in the city.
Urban economic hubs are built on the back of agglomeration economies. Such economies are fuelled by internal migration flows. This population churn leads to a spike in housing demand, pushing up prices. Governments around the world have time and again
reacted by adopting the most counterproductive policy possible-imposing rent controls. This is one of the few issues that economists across the ideological spectrum agree on, a minor miracle. As Nobel Prize-winning economist Paul Krugman wrote in 2000, rent
control is "among the best-understood issues in all of economics, and-among economists, anyway-one of the least controversial".
They have had ample evidence to study. Rent control became a go-to policy in Europe in the aftermath of World War II as shattered economies and cities were rebuilt. There and elsewhere, such as New York, it has been singularly damaging. The logic is simple.
Imposing price ceilings on any product below market rates will cause demand to rise even as supply dips. Thus, rent control has a host of damaging effects: The stock of new housing in the market falls as investment dries up; landlords lose the incentive to keep their
property in good repair; property tax revenue falls; administrative costs and burdens rise, and with these, the potential for corruption.
And contrary to its main purpose, rent control does more to harm poor and middle-income individuals and families than help them; the wealthy have greater capability to tap into the networks that give access to rent-controlled housing. For instance, multiple studies
have found that the median income of families living in rent-controlled housing in New York is higher than that of those living in unregulated housing.
Mumbai is a poster child for such policies and their inevitable consequences. A substantial chunk of it-most of the island city, in fact-comes under rent control regulations that date back to the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947. The Act
froze rents at 1940 rates or at rates decided by the courts. The market tried to find a way, as markets will. The pagdi system was one avenue. It allows rent-controlled properties to be "sold" from one tenant to another at something approaching market rates, but does
little to address the rent issue. Leave and licence agreements that worked outside the rent control system were another avenue. But in 1973, the Maharashtra government brought housing operating under this arrangement under rent control as well. The Maharashtra
Rent Control Act, 1999, replaced the 1947 legislation, but retained the controls for the most part, save for updating the cut-off for baseline prices.
In a 2015 paper, Decline Of Rental Housing In India: The Case Of Mumbai, Vaidehi Tandel, Shirish Patel, Sahil Gandhi, Abhay Pethe and Kabir Agarwal have looked at the outcomes, examining data from the new property tax cell of the municipal corporation of
Greater Mumbai. The results are unsurprising. In 1961, self-occupied and tenanted housing were in about equal proportion. Between 1961 and 2010, about 95% of residential construction was for ownership and only 5% for rental. This crunch, compounded by a floor
space index that is, unfathomably, among the lowest of any major city, leaves migrants with few options. Home ownership is for a small minority, given elevated prices and the difficulty of accessing credit. Another minority may be able to afford the high rentals in the
slender slice of the market that comprises unrestricted rental housing. For the rest, there are the slums-or rental housing in far-flung areas, adding to the burgeoning economic cost of traffic congestion in the city and burdening its infrastructure further.
Over the past three years, there have been repeated attempts by the Devendra Fadnavis government to address the rent control problem. They have all come a cropper. Affected tenants make for a much larger vote bank than landlords, and the emotiveness of the
issue makes any such attempt vulnerable to opposition pressure. Indeed, removing rent control in one go is both politically unviable and potentially too disruptive economically. But moving from the current first-generation controls to second-generation rent
stabilization-where landlords are allowed to raise rents with a cap linked to market rates-is a must. And the eventual goal must be phasing out controls altogether.
There are 28 billionaires living in Mumbai. Most of the rest have it much tougher. The government should get out of the way in the housing market and let them do what they do best. After all, they are the ones who made Mumbai an economic powerhouse.
Published by HT Digital Content Services with permission from MINT.
For any query with respect to this article or any other content requirement, please contact Editor at content.services@htlive.com
HT Digital Streams Limited
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28
The EpiPen, a Case Study in Health System
Dysfunction
nytimes.com/2016/08/24/upshot/the-epipen-a-case-study-in-health-care-system-dysfunction.html
23 August 2016
Three times in the last two weeks, people — a patient, a colleague and my wife — told me
stories about how out of control the price of EpiPens were. Monday, my New York Times
colleagues recounted in detail how expensive the devices have become in recent years. All
tell the tale of how much even basic health care can cost in the United States.
But by digging a bit further, the story of EpiPens can also explain so much of what’s wrong
with our health care system.
When people think of allergies to drugs, food or a bee sting, they often think of a rash.
And in fact that’s how many allergic reactions develop and proceed. Most can be treated
with diphenhydramine (Benadryl) and careful observation. But some are more serious.
Between 1 and 2 percent of people can develop what’s known as anaphylaxis, when the
airways you need to breathe swell and close.
Luckily, there’s a simple treatment for such reactions. Epinephrine — or adrenaline — is a

hormone naturally produced by the adrenal glands. It’s part of your “fight or flight”
response, and it causes your heart to beat faster, your blood vessels to constrict, your
pupils to dilate and — most important here — your airways to open.
Epinephrine is very, very cheap. Even in the developing world, it costs less than a dollar
per milliliter, and there’s less than a third of that in an EpiPen.
But to save a life, epinephrine must be delivered quickly, and in the proper amounts.
People suffering severe allergic reactions often can’t do it themselves. Drawing the drug
into a syringe and then administering it to someone else requires training and precision
that most people lack.
For that, there is the EpiPen.
What makes this auto-injection device so special is not the drug, but the ease with which
it automatically administers the correct dose without delay. The instructions are right on
the side, and even if you don’t read them, it’s pretty easy to figure out. Pull off the safety
cap, put the tip against the thigh, and push. Boom. Epinephrine delivered.
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life, with an emphasis on data and charts.
The EpiPen isn’t new; it has been in use since 1977. Research and development costs were
recouped long ago. Nine years ago, it was bought by the pharmaceutical company Mylan,
which then began to sell the device. When Mylan bought it, EpiPens cost about $57 each.
“Professor Shilpa Aggarwal and Professor Amit Bubna" at Indian School of Business, Hyderabad from "June 21, 2021 - July 25, 2021 1/4
29
Few competitors existed, and for various reasons, that has remained the case. The device
actually worked and saved lives. People needed it. Mylan raised the price. It also began to
raise awareness.
Unfortunately, epinephrine is inherently unstable. Research shows that it degrades pretty

quickly over time, and it’s recommended that EpiPens be replaced every year. When my
friends ask me if they can take an expired over-the-counter pain medication like
acetaminophen or ibuprofen, I shrug and nod. If they don’t get a full dose, it’s usually not
a big deal. But epinephrine is no joke. People in anaphylaxis need a full dose every time.
They therefore need to replace all their EpiPens every year, again and again.
Image
What makes an EpiPen special is not the drug, but the ease with which it automatically
administers the correct dose without delay.Credit...Rich Pedroncelli/Associated Press
Kids need them in many places. They need them at home. They need them at school. They
need them at camp. They may even want to stash one at Grandma’s house. So people
often need to buy quite a few.
More revenue for Mylan. And it raised the price.
Then in 2010, federal guidelines changed to recommend that two EpiPens be sold in a
package instead of one. Studies showed that about 10 percent of children who received
epinephrine from an EpiPen needed more than one dose. Better to be safe than sorry.
Additionally, the Food and Drug Administration changed its recommendations to allow
for the prescription of EpiPens for prevention for at-risk patients, not just for those with
confirmed allergies. Mylan stopped selling individual EpiPens and began to sell only twin-
packs.
30
It also raised the price.
In 2013, the government went further. It passed a law that gave funding preferences for
asthma treatment grants to states that maintained an emergency supply of EpiPens. As
the near sole supplier of the devices, Mylan stood to make even more money.
That year, Mylan raised the price again.
Of course, competition would bring the price down. But it’s very hard to bring such a
device to market. In 2012, the Adrenaclick and Twinject were discontinued. In 2013,
Sanofi began to sell Auvi-Q devices, which even gave audio instructions to walk people
though their use. Unfortunately, they were found to give potentially improper doses, and
were pulled from the shelves about a year ago.
Teva had hoped to offer a generic version of the EpiPen, but concerns from the F.D.A.
sent it back to the drawing board until at least next year.
Adamis hoped to offer prefilled syringes, which would still be harder to use than EpiPens.
But it was told by the F.D.A. that much more data would be needed before such a product
could be sold.
These setbacks, all in the last year, have once again left Mylan with a veritable run of the
market. It raised the price of EpiPens again. As of this May, they cost more than $600 a
pack. Since 2004, after adjusting for inflation, the price of EpiPens has risen more than
450 percent.
An alternative still exists. The Adrenaclick, while still not cheap, is back and less
expensive than the EpiPen. Some think it’s harder to use, though. It’s not on the accepted
list for many health insurance plans. More important, few physicians think of it. Because
of that, they write prescriptions for EpiPens. Since the Adrenaclick is not a generic version
of the EpiPen, pharmacists can’t substitute one for the other. A prescription for an EpiPen
must be filled with an EpiPen, regardless of what consumers might want.
Some people argue that we could still just use syringes and epinephrine for far less
money. Sure, they would expire every few months. Sure, they would be harder to use and
likelier to break. Sure, they would require training, be hard for the uninitiated to use in an
emergency and be more likely to be administered with an incorrect dose. Nonetheless,
you could argue that they’re an alternative when the “Cadillac” EpiPens are financially out
of reach.
But those are unsatisfactory arguments. Epinephrine isn’t an elective medication. It

doesn’t last, so people need to purchase the drug repeatedly. There’s little competition,
but there are huge hurdles to enter the market, so a company can raise the price again and
again with little pushback. The government encourages the product’s use, but makes no
effort to control its cost. Insurance coverage shields some from the expense, allowing
higher prices, but leaves those most at-risk most exposed to extreme out-of-pocket
outlays. The poor are the most likely to consider going without because they can’t afford
it.
31
EpiPens are a perfect example of a health care nightmare. They’re also just a typical
example of the dysfunction of the American health care system.
32
Why a Media Merger That Should Go Through Might Not ....................................................................................... 2

33
Why a Media Merger That Should Go Through Might Not
Common Sense
Business Day; Economy
Why a Media Merger That Should Go Through Might Not
By JAMES B. STEWART
1,413 words
26 October 2016
02:26
NYTimes.com Feed
NYTFEED
English
Copyright 2016. The New York Times Company. All Rights Reserved.
Opponents of the proposed AT&T purchase of Time Warner don’t want to just block the $84.5 billion deal:
They want to overturn decades of antitrust policy and case law.
Until recently, that would have been all but unthinkable. But in today’s superheated and politically charged
environment, they may just succeed.
Politicians were piling on this week to criticize the deal, including Donald J. Trump; Tim Kaine, the Democratic
nominee for vice president; and Senators Bernie Sanders of Vermont and Al Franken of Minnesota. Still to be
heard from is Senator Elizabeth Warren of Massachusetts, a prominent foe of corporate consolidation.
A younger generation of antitrust scholars who are rethinking the nation’s fundamental approach to antitrust
law may prove even more influential.
“Over the last 40 to 50 years, antitrust law has evolved to be almost completely indifferent to vertical
mergers,” said Tim Wu, an antitrust and internet expert at Columbia Law School who coined the phrase “net
neutrality” and recently wrote “The Attention Merchants” on the advertising business.
In vertical mergers, a company buys a supplier; in horizontal mergers, direct competitors combine.
But the new generation harks back to the original trustbusters of the early 20th century, who were most
concerned about preventing corporations from gaining too much power.
“The antitrust system as it stands is focused on prices to consumers, innovation and efficiencies,” Mr. Wu
said. “That reflects the triumph of the University of Chicago school of economics. But there’s an older
tradition, embodied by Supreme Court Justice Louis Brandeis, that says a concentration of too much power in
too few hands is bad for democracy and bad for consumers.”
Scott Hemphill, an antitrust and intellectual property professor at New York University School of Law, agreed.
“Vertical deals rarely get prohibited outright,” he said. “Modern antitrust case law has pretty much kept politics
out of the analysis.”
“But is antitrust law only about economics, or does enhanced political power play a role?” Mr. Hemphill asked.
“ Would a combined AT&T and Time Warner put too much power in one company? That’s the big question.”
It’s a question AT&T says it is prepared to answer. “If someone is looking for a test case to overturn the
time-honored judicial precedents of vertical mergers, this is not the case,” David R. McAtee II, AT&T’s general
counsel, told me this week. “What we have here is a classic vertical merger that will benefit consumers in an
environment that’s begging for innovation.”
Given antitrust precedents, it’s no wonder AT&T and Time Warner would expect regulatory approval, even if
they have to accept some conditions imposed by the government. Time Warner is so confident the deal will
be approved that it negotiated a paltry breakup fee (by megamerger standards) in the event it’s blocked: just
$500 million.
At nearly every opportunity, Randall Stephenson, AT&T’s chief executive, and other architects of the deal
have repeated the “vertical” mantra. As Mr. Stephenson told me this weekend, “This is strictly a vertical
merger. We’re combining with one of our big suppliers. You’d be hard pressed to find a vertical merger
denied by the regulators. They won’t give us a free pass, but we expect that if they have concerns, they’ll
impose conditions to address them.”

34
Mr. Stephenson is right about that. Time Warner is just one of many content suppliers to AT&T, albeit an
important one. Time Warner competes vigorously with other film and television studios, cable networks, and
producers of news and entertainment.
AT&T competes in cable delivery systems, satellite and wireless. While more concentrated than news and
entertainment (there are just four major wireless carriers), they are still competitive markets.
This isn’t a “horizontal” American Airlines-US Airways merger (which inexplicably passed antitrust review) or
even the earlier 21st Century Fox bid, which Time Warner rebuffed in part because of antitrust concerns.
Since neither firm competes with the other one, merging the two would have little or no effect on market
concentration. And the deal’s architects are promising a bevy of virtues for consumers, from more wireless
video access to lower prices.
Case closed?
Thanks in large part to groundbreaking books in the 1970s by the Supreme Court nominee and Yale Law
School antitrust scholar Robert Bork (“The Antitrust Paradox”) and Richard Posner (now an influential judge
on the Seventh Circuit Court of Appeals) at the University of Chicago Law School (“Antitrust Law”), vertical
mergers came to be viewed as usually promoting competition and, by extension, consumer welfare.
The view was embraced by the Supreme Court and embedded in the Justice Department’s vertical merger
guidelines during the Reagan administration.
Vertical merger challenges aren’t unheard-of, but few have been blocked entirely. A Georgetown University
Law Center study found 46 vertical enforcement actions in the 20-year period from 1994 to 2013, including a
1994 suit to block AT&T’s acquisition of McCaw Cellular Communications, a groundbreaking deal that paved
the way for AT&T’s entry into wireless communication. (AT&T completed the merger after reaching a consent
decree with the Justice Department.)
The proposed Comcast-NBC Universal deal set off an avalanche of criticism from rival media companies and
consumer advocates who argued that it consolidated too much power in one company. In 2011 the Justice
Department sued to block the deal on grounds it had the potential to disadvantage competitors that delivered
video services, such as satellite broadcasters and telecom companies, and emerging online video providers
like Netflix.
In an opinion that has no doubt been closely scrutinized by AT&T’s antitrust lawyers at Arnold & Porter, a
federal judge ruled that the conditions Comcast accepted to ease the regulator’s concerns “will provide a
prompt, certain and effective remedy for consumers by diminishing Comcast’s ability” to “harm competition.”
Whether that has indeed been the case will no doubt be the subject of intense scrutiny by regulators. “It’s
important to assess how well the NBC consent decree has done,” Mr. Hemphill said. “On the face of things,
online video seems to be thriving. But has Comcast engaged in troubling behavior as a result of owning
NBCUniversal? That’s an important question for thinking about this deal.”
Susan P. Crawford, a professor at Harvard Law School and author of “Captive Audience: The Telecom
Industry and Monopoly Power in the New Gilded Age,” was an influential voice in encouraging regulators to
oppose the proposed Comcast-Time Warner Cable merger. She predicted the same fate for AT&T-Time
Warner.
“I think this is unlikely to be approved,” she said. “There were very few public benefits to the Comcast/NBCU
deal, which should not have gone through. It’s difficult even to identify a public benefit for this one.”
Mr. McAtee of AT&T said it would “be fundamentally inconsistent and unfair” for the government to reject
AT&T’s deal for Time Warner after it approved the Comcast NBC Universal merger.
“We feel we have an even stronger case,” he added. “Comcast was a dominant, entrenched cable and
broadband provider, and NBC Universal had big broadcast licenses in an ecosystem where over the-top
video was still in its infancy. Yet the government approved the deal with conditions. On all counts, we have a
stronger case for approval.”
AT&T and Time Warner executives will have many months to make their argument to consumers, Congress,
regulators and the White House. But there’s a risk they will find themselves in the midst of a revolution in
antitrust thinking that transcends any one case.
“It’s interesting that both presidential candidates have said they’d take a close look at this,” Mr. Wu said. “So
one of the first tests for the new president will be where they come down on this: Will it be Louis Brandeis or
the University of Chicago?”

35
* AT&T Cheerleading Squad for Merger: Nearly 100 Lobbyists
* Code Names and Covert Meetings in AT&T’s Courtship of Time Warner
* A Chilly Reaction to AT&T-Time Warner Deal
* AT&T-Time Warner Deal Is a Shot in the Dark
“From a regulatory standpoint – classic anti-trust analysis – this is kind of a no-brainer,” said James Stewart of
The Times, “It’s classic vertical integration.” | By CNBC
Document NYTFEED020161025ecap006y1

36
Tech
The Evolving Economics of the App
By Greg Bensinger
1187 words
4 March 2013
05:34
The Wall Street Journal Online
WSJO
English
Copyright 2013 Dow Jones & Company, Inc. All Rights Reserved.
Music search application SoundHound is a bargain on Microsoft Corp.'s Windows Phone store: It is free.
But for iPhone users, one version of SoundHound costs $6.99. And on Google Inc. Android devices, a version of the mobile app costs $5.99. The price on Nokia Corp.'s app store: $4.99.
SoundHound isn't the only app with uneven prices. Using a wealth of data from mobile devices, developers of apps ranging from children's games to fitness trackers are increasingly testing an array of price points and business models.
They are drawing some conclusions: Free remains king, though users on iPhones and iPads generally have a greater tolerance to pay the price to download apps and shut off advertising than those on Android devices. Users of apps in Amazon's app store,
meanwhile, tend to make more purchases within the apps.
But overall, the economics of the apps business remains in flux as people upgrade smartphones and manufacturers introduce higher-end devices.
"There's nothing settled yet, this is an evolving business," said Katie McMahon, vice president for SoundHound, Santa Clara, Calif., whose app has been downloaded about 130 million times.
As of the end of 2012, the average price for a paid app in the Apple app store was $3.18 on an iPhone and $4.44 on an iPad, according to research firm Distimo. That compares with an average $3.06 in the Google Play store and $2.84 on Amazon.com Inc.'s app
store. App stores generally take a 30% cut of the sale.
An Apple spokesman said, "We continue to invest in providing them [developers] with the best ecosystem so they can create the most innovative apps in the world." A Google spokesman declined to comment.
The variable pricing trend may soon extend to in-app purchases as well. Amazon, for instance, is allowing developers to test different pricing schemes within an app to understand customer behavior, said Aaron Rubenson, director of the Amazon app store. So one
app user could be prompted to upgrade or buy virtual goods at different points than another, helping developers determine when customers are most likely to open their wallets and how much they are willing to pay.
Developers currently focus their efforts on the Google Play store and Apple app store because together they represent about 87% of U.S. smartphone users, according to research firm comScore Inc. Apple boasts 800,000 apps in its app store, compared with 700,000
on Google Play, 125,000 on Windows and 70,000 for Amazon.
Most of these apps are given away. Market researcher Gartner estimates about half of all apps in the Apple store are free, compared with nearly three-quarters in Google Play.
Many developers said they have found different price sensitivities for purchasers on the different app stores which has influenced how they price the apps for particular outlets. In general, Android device owners are less likely than iOS users to spend money on apps,
including for downloads as well as in-app purchases, developers say. That is due in part to the greater availability of low-end Android smartphones and tablets, which tend to attract lower-income people compared with iPhone and iPad users.
James Vaughan, chief executive of Ndemic Creations, which offers the "Plague Inc." strategy game, in October introduced the Android version of Plague and considered charging 99 cents for it like he does for the iPhone. But since "Google Play users are less likely to
pay for an app upfront," he said he instead offered the app free.
Mr. Vaughan said he benefits with a free app by getting more downloads from users who may be encouraged to pay later to upgrade the app. About five million Google Android users have downloaded the app so far, about what he said he expected. He didn't say how
many have converted to the paid version, beyond saying the rate is "extremely high."
Meanwhile, Mr. Vaughan has offered Plague Inc. for 99 cents on iPhones since May, knowing that Apple users are more inclined to pay for an app initially. He said the app has been downloaded about four million times on Apple devices. Ndemic's revenue totals in the
"high millions," he added, declining to be specific.
Many developers continue to change prices for their apps after they launch. Scott Lahman, CEO of textPlus Inc. in Marina del Rey, Calif., said he experimented with textPlus' prices after launching a $4.99 version on Apple in December 2009.
Mr. Lahman, whose app offers discounted texting and calling rates, said he lowered the premium app's price every few weeks to as low as 99 cents, before settling on $1.99 after finding margins were about the same on those two versions. "It was very predictable: As
the price went down, downloads went up," he said.
37
TextPlus brings in more than $12 million in revenue annually and the app has been downloaded over 40 million times, primarily through free versions supported by advertising.
Advertising plays a role in how developers price their apps. Typically, so-called premium apps come without advertising, meaning it may be more difficult to make money off a user once they've upgraded. SoundHound's Ms. McMahon said the company has devoted
more resources to developing its free versions because advertising "is infinitely monetizable."
For Toronto-based Game Hive Corp., which developed the "Kick the Boss" revenge fantasy game for Apple and Android devices, advertising associated with free versions of its apps account for about half the company's revenue, said marketing director Mark Wang.
"The pay[ing] user is more valuable, but that turns off advertising forever," said Mr. Wang, who has versions of his apps at 99 cents on Apple and Android devices and is developing another for Amazon, as well as more-limited free versions on those stores. "You want
to extract the maximum willingness to pay from your users."
Developers said users on Amazon's app store on average spend more freely within apps—in part because those customers are accustomed to buying a variety of items from Amazon—followed by iOS and Android users. The app stores declined to comment on users'
average spending.
The dissimilar pricing of apps can be risky. Sarah Rotman Epps, a Forrester Research analyst, said developers may confuse or anger customers with too many pricing options, particularly as people branch out into owning several mobile devices. "There needs to be
as much transparency as possible," she said.
But developers said pricing is likely to change even further as they learn more about users' spending habits. In the future, developers said they may be able to differently price their apps, advertising rates or even in-app purchases—such as a song or virtual sword—
based upon which gadget a customer is carrying. Developers said, however, it remains a difficult technical challenge and risks upsetting customers who may think they are being punished for buying the wrong device.
Write to Greg Bensinger at greg.bensinger@wsj.com [mailto:greg.bensinger@wsj.com]
Dow Jones & Company, Inc.
Document WSJO000020130304e9340002t
© 2021 Factiva, Inc. All rights reserved.
38
Counsel of protection; The future of insurance
Publication info: The Economist ; London Vol. 422, Iss. 9031, (Mar 11, 2017): 71.
ABSTRACT (ENGLISH)
Two Sigma, a large American "quant" hedge fund, for example, is betting its number-crunching algorithms can
gauge risks and set prices for insurance better and faster than any human could. Two Sigma contributes its
analytical prowess to a joint venture with Hamilton, a Bermudian insurer, and AIG, which actually issues the
policies (currently only for small-business insurance in America). Life insurers, reliant on investment returns to
meet guaranteed payouts, have been stung by a prolonged period of low interest rates. [...]providers of property-
and-casualty (P&C) insurance, such as policies to protect cars or homes, have seen their pricing power come under
relentless pressure, notably from price-comparison websites. The American P&C industry, for instance, has seen
its "combined ratio", which expresses claims and costs as a percentage of premium revenue, steadily creep up
from 96.2% in 2013 to 97.8% in 2015, and to an estimated 100.3% for 2016 (ie, a net underwriting...
FULL TEXT
Insurers move from simply paying claims to providing services
IN THE stormy and ever-changing world of global finance, insurance has remained a relatively placid backwater.
With the notable exception of AIG, an American insurer bailed out by the taxpayer in 2008, the industry rode out the
financial crisis largely unscathed. Now, however, insurers face unprecedented competitive pressure owing to
technological change. This pressure is demanding not just adaptation, but transformation.
The essential product of insurance--protection, usually in the form of money, when things go wrong--has few
obvious substitutes. Insurers have built huge customer bases as a result. Investment revenue has provided a
reliable boost to profits. This easy life led to a complacent refusal to modernise. The industry is still astonishingly
reliant on human labour. Underwriters look at data but plenty still rely on human judgment to evaluate risks and set
premiums. Claims are often reviewed manually.
The march of automation and technology is an opportunity for new entrants. Although starting a new soup-to-nuts
insurer from scratch is rare (see "Peer-to-peer insurance: When life throws you lemons"), many companies are
taking aim at parts of the insurance process. Two Sigma, a large American "quant" hedge fund, for example, is
betting its number-crunching algorithms can gauge risks and set prices for insurance better and faster than any
human could. Other upstarts have developed alternative sales channels. Simplesurance, a German firm, for
example, has integrated product-warranty insurance into e-commerce sites.
Insurers are responding to technological disruption in a variety of ways. Two Sigma contributes its analytical
prowess to a joint venture with Hamilton, a Bermudian insurer, and AIG, which actually issues the policies
(currently only for small-business insurance in America). Allianz, a German insurer, simply bought into
Simplesurance; many insurers have internal venture-capital arms for this purpose. A third approach is to try to
foster internal innovation, as Aviva, a British insurer, has done by building a "digital garage" in Hoxton, a trendy part
of London.
The biggest threat that incumbents face is to their bottom line. Life insurers, reliant on investment returns to meet
guaranteed payouts, have been stung by a prolonged period of low interest rates. The tough environment has
accelerated a shift in life insurance towards products that pass more of the risk to investors. Standard Life, a
British firm, made the transition earlier than most, for example, and has long been primarily an asset manager (see
"Asset management: Choosing Life").
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Meanwhile, providers of property-and-casualty (P&C) insurance, such as policies to protect cars or homes, have
seen their pricing power come under relentless pressure, notably from price-comparison websites. In combination
with the stubbornly high costs of maintaining their old systems, this has meant that profitability has steadily
deteriorated. The American P&C industry, for instance, has seen its "combined ratio", which expresses claims and
costs as a percentage of premium revenue, steadily creep up from 96.2% in 2013 to 97.8% in 2015, and to an
estimated 100.3% for 2016 (ie, a net underwriting loss). Henrik Naujoks of Bain &Company, a consultancy, says
this has left such insurers facing a stark choice: become low-cost providers, or differentiate themselves through
the services they provide.
One fairly simple way to offer distinctive services is to use existing data in new ways. Insurers have long drawn up
worst-case scenarios to estimate the losses they would incur from, say, a natural catastrophe. But some have
started working with clients and local authorities on preparing for such events; they are becoming, in effect, risk-
prevention consultants. AXA, a French insurer, has recently started using its models on the flooding of the Seine to
prepare contingency plans. Gaelle Olivier of AXA's P&C unit says the plans proved helpful in responding to floods in
June 2016, reducing the damage.
Damage control
Tech-savvy insurers are going one step further, exploiting entirely new sources of data. Some are using sensors to
track everything from boiler temperatures to health data to driving styles, and then offering policies with pricing
and coverage calibrated accordingly. Data from sensors also open the door to offering new kinds of risk-prevention
services. As part of Aviva's partnership with HomeServe, a British home-services company, the insurer pays to
have a sensor ("LeakBot") installed on its customers' incoming water pipes that can detect even minuscule leaks.
HomeServe can then repair these before a pipe floods a home, causing serious damage.
The shift towards providing more services fosters competition on factors beyond price. Porto Seguros, a Brazilian
insurer, offers services ranging from roadside assistance to scheduling doctor's appointments. In France AXA
provides coverage for users of BlaBlaCar, a long-distance ride-sharing app. The main aim of the policy is to
guarantee that customers can still reach their destination. If, say, the car breaks down, it offers services ranging
from roadside car-repair to alternative transport (eg, calling a taxi).
Insurers face many hurdles, however, to becoming service providers and risk consultants. Maurice Tulloch, head of
the general-insurance arm of Aviva, admits that such services are yet to catch on with most customers. So far, his
firm, like its peers, has focused on enticing them to adopt the new offerings by cutting insurance premiums, rather
than on making money directly from them. It reckons it can recoup the cost of, say, the HomeServe sensors and
repairs from the reduction in claims.
One example of what the future may hold comes from the car industry. Carmakers have traditionally bought
product-liability insurance to cover manufacturing defects. But Volvo and Mercedes are so confident of their self-
driving cars that last year they said they will not buy insurance at all. They will "self-insure"--ie, directly bear any
losses from crashes.
Some think that such trends threaten the very existence of insurance. Even if they do not, Bain's Mr Naujoks is not
alone in expecting the next five years to bring more change to the insurance industry than he has seen in the past
20.
DETAILS
Subject: Property &casualty insurance; Insurance industry; Business conditions;

Technological change; Claims processing; Services; Information management
Publication title: The Economist; London
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Volume: 422
Issue: 9031
First page: 71
Publication date: Mar 11, 2017
Section: Finance
Publisher: The Economist Intelligence Unit N.A., Incorporated
Place of publication: London
Country of publication: United Kingdom, London
Publication subject: Business And Economics--Economic Systems And Theories, Economic History,
Business And Economics--Economic Situation And Conditions
ISSN: 00130613
e-ISSN: 14768860
Source type: Magazines
Document type: News
Document URL: https://search.proquest.com/docview/1878308878?accountid=26511
Copyright: (Copyright 2017 The Economist Newspaper Ltd. All rights reserved.)
Database: Business Premium Collection
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United States: Happy-go-lucky young; Health
insurance
Publication info: The Economist ; London Vol. 385, Iss. 8549, (Oct 6, 2007): 52.
ABSTRACT

Young people are hard to pin down. They graduate from school. They jump between employers, or in and out of
employment. They leave their parental home for a shared flat, a friend's couch, or a house they can scarcely afford.
They move to New York, San Francisco, Portland, or even Austin. And so they often wander away from the
comforts of health-care insurance. According to the Census Bureau, almost 30% of Americans between the ages of
18 and 34 are uninsured. For people aged 45 to 64 the number is just 14%. Having more healthy young people in
the insurance pool would benefit insurers, because they are less likely to make big claims. But efforts to attract
them have thus far been feeble. One company, however, is taking an interesting new approach. In September
Precedent Insurance - a division of the American Community Mutual Insurance Company - brought out a line of
Coverage on Demand plans. The plans are currently available only in Texas, which has a higher percentage of
uninsured people than any other state. They offer low premiums, low deductibles, limited benefits, and a clever
twist. If you exhaust your benefits but need more coverage, you can pay an additional "activation fee" and get
more, even after you get ill or hurt.
FULL TEXT

The latest targets for insurers
YOUNG people are hard to pin down. They graduate from school. They jump between employers, or in and out of
employment. They leave their parental home for a shared flat, a friend's couch, or a house they can scarcely afford.
They move to New York, San Francisco, Portland, or even Austin.
And so they often wander away from the comforts of health-care insurance. According to the Census Bureau,
almost 30% of Americans between the ages of 18 and 34 are uninsured. For people aged 45 to 64 the number is
just 14%.
A healthy young person seldom requires medical attention. So forgoing insurance is an understandable decision.
But some of those who roll the dice lose. A serious illness or accident can be financially ruinous, and lead to sub-
standard care.
Having more healthy young people in the insurance pool would benefit insurers, because they are less likely to
make big claims. But efforts to attract them have thus far been feeble. Various companies offer low monthly
premiums aimed at the young. But they typically have high deductibles--the amount the subscriber has to pay out
of his own pocket before insurance kicks in. So young people tend to shy away from them.
One company, however, is taking an interesting new approach. In September Precedent Insurance--a division of the
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American Community Mutual Insurance Company--brought out a line of Coverage on Demand plans. The plans are
currently available only in Texas, which has a higher percentage of uninsured people than any other state. They
offer low premiums, low deductibles, limited benefits, and a clever twist. If you exhaust your benefits but need
more coverage, you can pay an additional "activation fee" and get more, even after you get ill or hurt. There are four
levels of cover. To get to the fourth requires at least a cumulative $9,000 in activation fees. But it then provides the
subscriber with up to $5m in coverage.
The activation fees for the higher levels are steep, but a lot better than bankruptcy. According to Mike Grandstaff,
the company's chief executive officer, they only make sense if you are, in fact, in reasonably good health. If you are
likely to need more than the first level of coverage, the plan is not really economical.
Even people who plan on staying well may prefer more comprehensive health-care insurance. The Precedent plans
do not cover, for example, costs associated with a normal pregnancy. This is to discourage women who plan on
becoming pregnant shortly after signing up. But it is, of course, hard luck on a woman with an unplanned
pregnancy. Perhaps she could hope that the father works for the government and is in a marrying mood.
Young people have it tough. It remains easier for politicians to rally around the cuddly or wrinkly. This was
apparent this week, as Democrats denounced a "cruel" George Bush for vetoing, on October 3rd, the
reauthorisation and expansion of the State Children's Health Insurance Programme (SCHIP). This federal
programme provides insurance for 6.9m children from low-income families by providing blocks of money to the
states, which disburse it. SCHIP began in 1997 and expired on September 30th, although Congress has already
extended it for six weeks while the political wrangling continues.
A bipartisan majority in the House and Senate passed a plan that calls for $35bn in additional spending on SCHIP
over the next five years, only to see it vetoed as expected. The plan would have upped the number of children
covered to 10m. Mr Bush opposed the scheme mainly on cost grounds (though Democrats say this rings false,
given how much he is wasting on the Iraq war) and accused him of wantonly denying children health-care
insurance. This week they plainly won the political advantage. But curing America's health-care system will take
more than political point-scoring and limited fixes. It will require a degree of political co-operation that is not now
available.
Illustration
Caption: Before the fall
DETAILS
Subject: Young adults; Health insurance; Insurance companies; Insurance coverage;

Marketing
Location: United States US
Classification: 1200: Social policy; 8210: Life &health insurance; 7000: Marketing; 9190: United
States
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Volume: 385
Issue: 8549
Pages: 52
Number of pages: 0
Publication date: Oct 6, 2007
Dateline: austin
Section: United States
ISSN: 00130613
e-ISSN: 14768860
CODEN: ECSTA3
Document type: Feature
Document feature: Photographs
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Taxi drivers overcharge when passengers are on
expenses
economist.com/business/2017/02/28/taxi-drivers-overcharge-when-passengers-are-on-expenses
28 February 2017
Taken for a ride
If a service provider knows someone else is paying your bills, he

is more likely to rip you off
Business
MORAL hazard is a problem that crops up frequently in economics. People behave

differently if they do not face the full costs or risks of their actions: deposit insurance
makes customers less careful about choosing their banks, for example.
Moral hazard can also be second-hand. Take medicine. A patient with private insurance
may be happy to sit through extra tests, and a doctor may be happy to order them.
Doctors might be more reluctant to order tests if they know that the patient would bear
the full cost.
A newly published paper* sets out to test this secondary problem by examining a
common-enough situation—taking a taxi ride in a strange city. The authors, a trio of
academics at the University of Innsbruck, sent researchers on 400 taxi rides, covering 11
different routes, in Athens, Greece. In all cases, the researchers indicated they were not
familiar with the city. But in half the cases, the researchers indicated that their employers
45
would be reimbursing them for the journey. The researchers in the latter group were 17%
more likely to be overcharged for their trip and paid a fare that was, on average, 7%
higher.
The most common form of overcharging was not, as might be expected, taking a longer
route. People on expenses may be less concerned about the cost of a ride but they still care
how long it takes. Instead, passengers were subject to bogus surcharges (a fee for airport
pickup, for example) or charged the night-time fare in the daytime.
There was also a difference between the way that taxi drivers treated different sexes.
Women were overcharged more frequently than men. But they were overcharged whether
or not the driver knew they were travelling on expenses (the difference between the extent
of overcharging was not statistically significant). Drivers may be tempted to overcharge,
the authors believe, because members of the higher-fare sex are less likely to complain.
* “Second-Degree Moral Hazard in a Real-World Credence Goods Market” by Loukas

Balafoutas, Rudolf Kerschbamer and Matthias Sutter, The Economic Journal, February
2017
Simply Science
46
N.Y. / Region
In Manhattan Pizza War , Price of Slice Keeps Dropping
By N. R. KLEINFIELD
1,190 words
31 March 2012
NYTimes.com Feed
NYTFEED
English
Copyright 2012. The New York Times Company. All Rights Reserved.
In the amped-up war of commerce and 75-cent pizza on the Avenue of the Americas in Midtown, a
perilous moment is approaching. Circumstances suggest that ravenous New Yorkers might soon
witness 50-cent pizza, 25-cent pizza or, yes, free pizza.
It is that caustic. Neither side is willing to yield an inch — or a cent. Escalation seems imminent.
As so often happens in twisty New York stories involving wallets and food choices, who is being
picked on and who is attacking vary in the telling. Convenient facts get omitted from the narrative.
It’s best to start at $1.50 a slice.
That is what pizza was selling for about a year ago at a family business that is a combination
vegetarian Indian restaurant, candy store and pizza parlor on Avenue of the Americas (also known as
Sixth Avenue), between 37th and 38th Streets. It is called Bombay Fast Food/6 Ave. Pizza.
Then a Joey Pepperoni’s Pizza opened near the corner of 39th and Avenue of the Americas, offering
pizza for $1, a price that has in recent years been favored by a number of New York pizza
establishments.
So Bombay/6 Ave. Pizza shrank its price to $1 too.
All was good until last October, when a third player entered the drama.
A 2 Bros. Pizza, part of an enlarging New York chain of 11 shops that sell slices for a dollar, opened
virtually next door to Bombay/6 Ave. Pizza. The only separation is a stairwell that leads up to a
barbershop and hair salon.
Price stability at a buck all around persisted until eight days ago, when both 2 Bros. and Bombay/6
Ave. Pizza began selling pizza for the eye-catching price of 75 cents a slice, tax included — three
slender quarters.
(This alone was not a milestone. The Ray’s Pizza on Broadway between 54th and 55th introduced a
75-cent slice for a limited time in January of last year. Slices are now 99 cents, plus tax: $1.08.)
The primary owner of Bombay/6 Ave. Pizza is Ramanlal Patel, 68, who also has a few businesses in
Atlanta and holds property in India.
His nephew, Bravin Patel, 45, oversees the establishment. He and his manager, Mohid Kumar, 49,
were there the other day griping about 75-cent pizza.
“I’m thinking, God help me,” Mr. Patel said.
47
They said that 2 Bros. was trying to drive them out of business, that 2 Bros., unprovoked, slashed the
price to 75 cents, forcing them to follow, that things were miserable, that Ramanlal Patel has serious
kidney problems, that property in India had to be sold to keep the place going.
“We’re angry,” Bravin Patel said.
Depicting the battle as “small guy” (Bombay) against “big guy” (2 Bros.), Mr. Patel said: “He comes in
and he thinks he’s king.”
Mr. Kumar said he was contemplating checking with a lawyer to see if there might be a city law that
somehow prohibits a business from selling pizza at outlandishly cheap prices.
But as is so often the case in battles like these, the other side told a slightly different story.
At the St. Marks Place office of 2 Bros., its owners, the Halali brothers Eli, 29, and Oren, 27, identified
the true aggressor as Bombay/6 Ave. Pizza.
Here’s how they described it:
On Thursday evening a week ago, Bombay/6 Ave. — unprovoked, and without warning — cut its pizza
price to 79 cents. The next morning, 2 Bros. retaliated by moving to 75 cents (its owners felt it was
easier to make change from a dollar than at 79 cents). Bombay/6 Ave. matched the 75 cents, and
that’s where everything sits.
“We don’t sell pizza at 75 cents,” Eli Halali said. “But if they think they’re going to sit next to us and sell
at 75 cents, they’ve got another think coming.”
Could they prove it? At this point, it was just one pizza seller’s word versus another’s.
But 2 Bros. has a security camera. Winding back to the night in question, the night of the sudden 21-
cent price drop, a manager found frames that showed the front of the two stores. And there it was:
Bombay/6 Ave. Pizza’s 79-cent sign when 2 Bros. was at $1. Mr. Patel and Mr. Kumar had made the
first move.
When they were apprised of this information, they said they did not realize there had been interest in
talking about 79-cent pizza.
Why, then, did they lower their price first?
“He was taking away our customers,” Mr. Kumar said. “How were we going to pay our rent?”
For his part, Eli Halali made it clear that 75 cents was a temporary price point. He said he could not
make money at that level and eventually would return to $1. He said that if Bombay/6 Ave. Pizza went
back to $1, he would as well.
If it didn’t, he said, it better watch out.
His father, Joshua Halali, who acts as a consultant to 2 Bros., said, “I suggested to my children to go
to 50 cents.”
Oren Halali said, “We might go to free pizza soon.”
Eli said: “We have enough power to wait them out. They’re not going to make a fool of us.”
The brothers said they are also contemplating adding fried chicken to the Avenue of the Americas
store to intensify the pressure on Bombay/6 Ave. Pizza.
Meanwhile, Mr. Patel remains intransigent. “We’re never going back to $1,” he said. “We’re going
lower.”
48
“We may go to 50 cents,” Mr. Kumar said. Of his next-door rival, he said: “I want to hit him. I want to
beat him.”
They had added the name, Pizza King, to the sidewalk sign out front, hoping a regal nickname might
do some good.
Related prices at both establishments have also tumbled. The special of two slices and a drink
dropped to $2.25 from $2.75. An entire pie fell to $6 from $8 (actually to $5.99 at Bombay/6 Ave.
Pizza).
A haircut at the barber located between them is $12. Better that you eat.
As for Joey Pepperoni’s, Met Zade, one of the owners, said: “I can tell you we’re absolutely not
dropping our price. For $1 a slice, you can still make a profit. For $1, an owner can still sit down and
eat. At 75 cents, you’d be a mouse on a wheel.”
While the pizza parlors insult one another, the eating public couldn’t be happier.
At 6 Ave. Pizza, Mike Dooley, 60, a maintenance worker, said while polishing off a slice: “I think it’s
beautiful. We need 75-cent hamburgers next.”
At 2 Bros., John Combs, 46, a carpenter, said, with a mouthful of pizza: “It’s awesome. I’m from
Jersey, but any time I’m in the city I’ll be back. It’s awesome.”
Document NYTFEED020120331e83v0002w
49
Metropolitan Desk; SECTA
$1 Pizza Slice Is Back After a Sidewalk Showdown Ends Two Parlors' Price War
By MATT FLEGENHEIMER
617 words
6 September 2012
The New York Times
NYTF
Late Edition - Final
21
English
Copyright 2012 The New York Times Company. All Rights Reserved.
The signs have been changed. The invectives have softened. The products remain, well, unlikely to win any
culinary awards.
But after several months and increasingly long lines, the proprietors of two pizza parlors on Avenue of the
Americas have agreed to end a price war that saw the cost of their slices plummet to 75 cents each.
All it took, it seems, was a brush with mutually assured destruction and one meeting of questionable legality.
''We make a compromise,'' said Pravin Patel, who oversees Bombay Fast Food/6 Ave. Pizza, which sits a few
feet south of 2 Bros. Pizza between West 37th Street and West 38th Street. ''Both guys agreed. Both guys
were losing money.''
And so slices returned to $1 about two weeks ago. Two slices and a soda now cost $2.75.
A détente did not appear likely earlier this year. One evening in March, when both stores had been charging
$1 per slice, Bombay lowered its rate to 79 cents. The next morning, 2 Bros. moved its price to 75 cents,
which its neighbor soon matched.
''We have enough power to wait them out,'' Eli Halali, an owner of the 2 Bros. chain, said at the time. ''They're
not going to make a fool of us.''
Oren Halali, Eli's brother and fellow owner, suggested in March, ''We might go to free pizza soon.''
But the price appears to have taken a toll, spawning what Mr. Patel and 2 Bros. employees recalled as a
critical sidewalk meeting between the two proprietors in recent weeks.
Mr. Patel said the negotiation was brief. ''I said, 'We lose money, and the customer wins,' '' he recalled. ''He
said, 'You're right.' ''
Efforts on Wednesday to reach the Halali brothers at the store, at another store by the chain's office on St.
Marks Place and by phone were unsuccessful. But one of their cashiers, Daniel Bravo, recalled seeing the
meeting.
''We don't know how it happened,'' Mr. Bravo, 20, said. ''We just saw them talking outside. Next thing you
know, it's a dollar.''
According to legal experts, a premeditated, simultaneous price change almost certainly qualifies as collusion
-- quaint, perhaps, but still technically illegal under antitrust laws.
''Any agreement to fix prices is illegal per se,'' Harry First, a law professor at New York University and an
antitrust expert, said. The action could violate not only state law, but also federal law if it involved interstate
commerce. ''Who knows?'' Professor First said. ''Maybe the cheese is from out of state.''
The office of the New York State attorney general, Eric T. Schneiderman, declined to comment on whether
the price change was legal or whether it would intervene.

50
Asked whether his arrangement might have been illegal, Mr. Patel appeared unconcerned. ''We were talking
together!'' he said. ''Same time!''
The price increase has not affected the volume of slices sold so far, Mr. Patel said, and most customers
appeared unruffled by the change.
But the new rate did take some by surprise. On Wednesday, Jock Payten, 22, a regular 2 Bros. customer,
asked for two slices. He handed the cashier $2 and lingered. The transaction was over, he was told.
Mr. Payten lumbered out, shaking his head. Moments later, he had reclaimed some perspective. ''You're still
getting pizza for a dollar,'' he said. ''But I definitely was expecting that 50 cents back.''
Calm returned to Avenue of the Americas after Bombay Fast Food/6 Ave. Pizza and 2 Bros. Pizza gave up
on their 75-cent slices. (PHOTOGRAPH BY CHESTER HIGGINS JR./THE NEW YORK TIMES)
Document NYTF000020120906e8960006r

51
Jiopolitics; Schumpeter
Publication info: The Economist ; London Vol. 422, Iss. 9031, (Mar 11, 2017): 68.
ABSTRACT (ENGLISH)
Will a project deliver a reasonable return on the capital invested? A few hurl all the forecasts and reports into the
bin and surrender to their own hunger to make a mark. In September 2016 he placed one of the biggest business
bets in the world by launching Jio, a mobile-telecoms network that allows India's masses to access data on an
unprecedented scale. All told, RIL's refining and petrochemicals unit accounts for two-fifths of its capital employed
but over 100% of operating profits. The incumbent firms are heavily indebted, so have limited ability to respond to
a price war. Yet even assuming it keeps cranking prices up and wins a third of the market, a discounted-cash-flow
analysis suggests that it would be worth only two-thirds of the sum that Mr Ambani has spent. The best hope for
Jio is that in the distant future it will be one of three firms left and that a cut-throat industry will evolve into a
comfy oligopoly, which is possible.
FULL TEXT
India's richest man makes the business world's most aggressive bet
SOME businesspeople are guided by experts, spreadsheets and crunchy questions. What is your three-year target
for market share? Will a project deliver a reasonable return on the capital invested? A few hurl all the forecasts and
reports into the bin and surrender to their own hunger to make a mark.
One such figure is Mukesh Ambani, India's richest man. In September 2016 he placed one of the biggest business
bets in the world by launching Jio, a mobile-telecoms network that allows India's masses to access data on an
unprecedented scale. In the past six months it has won 100m customers. Only one other firm on the planet has
such an acquisition rate--Facebook. From Kolkata's slums to the banks of the Ganges, millions of Indians are using
social media and streaming videos for the very first time.
To achieve this, Mr Ambani has spent an incredible $25bn on Jio, without making a rupee of profit, terrifying
competitors and many investors. The motivation for his gamble probably lies with his turbulent family history.
Reliance Industries Limited (RIL), Mr Ambani's company, was set up by his father, Dhirubhai, in 1957. Born in
humble circumstances, Dhirubhai was famous for three things: running rings around officials; creating a fortune
for himself and RIL's army of small shareholders; and his appetite for giant industrial projects. RIL jumped from
textiles into oil refining and petrochemicals. Its refinery in Gujarat is one of the world's largest. It opened in 2000,
two years before Dhirubhai died.
Mukesh Ambani and his brother, Anil, took the reins in 2002 and split from each other in 2005, leaving Mukesh in
full control of RIL. Since then his record has been patchy. RIL's shares have lagged India's stockmarket over the
past decade and its return on capital has sagged, halving from 12% to 6%.
Emulating his father, Mr Ambani has rolled the dice on several huge projects. He has invested huge sums to
modernise the petrochemicals and refining business. This decision has been a success--it is an excellent operation
that makes a return of about 12%. But Mr Ambani's other investment calls have flopped. In 2010-15 RIL spent $8bn
on shale fields in America. Now that oil prices are lower they lose money. The group invested about $10bn in
energy fields off India's east coast; they have produced less gas than hoped for and are worth little. And RIL has
spent around $2bn on a retail business that produces only small profits. All told, RIL's refining and petrochemicals
unit accounts for two-fifths of its capital employed but over 100% of operating profits. The other businesses,
developed mainly after Mr Ambani took sole charge, swallow a majority of resources but don't make money.
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A lesser man might have lost his nerve, but Mr Ambani has pursued another colossal bet in the form of Jio. He
knows telecoms: in 2002 he oversaw the family's first attempt to build a big mobile-phone business (his brother
now owns the struggling operation). The latest effort has been a decade in the making. Step by step, RIL acquired
spectrum, worked with handset suppliers and built a "fourth-generation" network. Jio's offer of free services
caused a sensation. A savage price war has ensued. One rival executive reckons Jio is carrying more data than
either China Mobile or AT&T, the world's two most valuable operators.
That underlines the potential of India's telecoms market. Data usage is low, there are few fixed lines and most
people don't have smartphones. The incumbent firms are heavily indebted, so have limited ability to respond to a
price war.
Jio will start charging from April 1st. Yet even assuming it keeps cranking prices up and wins a third of the market,
a discounted-cash-flow analysis suggests that it would be worth only two-thirds of the sum that Mr Ambani has
spent. To justify that amount Jio would at some point need to earn the same amount of profit that India's entire
telecoms industry made in 2016. In other words, there is no escaping the punishing economics of pouring cash
into networks and spectrum. For every customer that Jio might eventually win, it will have invested perhaps $100.
Compare that with Facebook or Alibaba, both asset-light internet firms, which have invested about $10 per user.
Jio's three main mobile competitors have scrambled to respond. Bharti Airtel is buying a smaller rival to try to
lower its costs. Vodafone is in talks about merging with Idea Cellular, another operator. Half a dozen or so weaker
companies (including the firm now run by Mr Ambani's brother) will probably disappear. The best hope for Jio is
that in the distant future it will be one of three firms left and that a cut-throat industry will evolve into a comfy
oligopoly, which is possible.
RIL's share price has gone nowhere for years but excitement about Jio's 100m new customers has helped it
bounce over the past month. Still, the scale of the investment illustrates the risks that shareholders face at a firm
that is controlled by one man. Even if Jio eventually gushes cash it is not clear if RIL will pay bigger dividends, or if
Mr Ambani will instead pursue another grand project. As investors wait, however, many more of India's 1.3bn
consumers will gain--not only from low prices, but a welcome splurge on the nation's telecom infrastructure.
Defiance from Reliance
And what of Mr Ambani? Perhaps he hopes to get his money back by turning Jio into an internet firm that offers
payment services and content, not just connectivity. China's Tencent, which owns WeChat, a messaging service,
has successfully diversified into games and banking. Still, no telecoms firm has managed this feat and it is hard to
see how RIL's clannish culture can become a hotbed of innovation. More likely, Mr Ambani, aged 59, just doesn't
care what all the spreadsheets point to. Sitting atop his skyscraper, overlooking teeming Mumbai, where some 5m
new Jio customers are surfing the web at high speed for peanuts, he can at last say that he has changed India.
When you are Dhirubhai's son, that is probably enough.
DETAILS
Subject: Social networks; Profits; Prices; Stockholders; Investments; Telecommunications

industry; Mobile communications networks
Location: India
People: Ambani, Mukesh D
Volume: 422
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Issue: 9031
First page: 68
Publication date: Mar 11, 2017
Section: World Business
ISSN: 00130613
e-ISSN: 14768860
Document type: News
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Prison breakthrough; Game theory59-
Anonymous . The Economist ; London Vol. 420, Iss. 9003, (Aug 20, 2016): 59-60.
ABSTRACT

John Nash arrived at Princeton University in 1948 to start his PhD with a one-sentence recommendation: "He is a
mathematical genius". He did not disappoint. Aged 19 and with just one undergraduate economics course to his
name, in his first 14 months as a graduate he produced the work that would end up, in 1994, winning him a Nobel
prize in economics for his contribution to game theory. On November 16th 1949, Nash sent a note barely longer
than a page to the Proceedings of the National Academy of Sciences, in which he laid out the concept that has
since become known as the "Nash equilibrium". This concept describes a stable outcome that results from people
or institutions making rational choices based on what they think others will do.
FULL TEXT

The fifth of our series on seminal economic ideas looks at the Nash equilibrium
JOHN NASH arrived at Princeton University in 1948 to start his PhD with a one-sentence recommendation: "He is a
mathematical genius". He did not disappoint. Aged 19 and with just one undergraduate economics course to his
name, in his first 14 months as a graduate he produced the work that would end up, in 1994, winning him a Nobel
prize in economics for his contribution to game theory.
On November 16th 1949, Nash sent a note barely longer than a page to the Proceedings of the National Academy
of Sciences, in which he laid out the concept that has since become known as the "Nash equilibrium". This concept
describes a stable outcome that results from people or institutions making rational choices based on what they
think others will do. In a Nash equilibrium, no one is able to improve their own situation by changing strategy: each
person is doing as well as they possibly can, even if that does not mean the optimal outcome for society. With a
flourish of elegant mathematics, Nash showed that every "game" with a finite number of players, each with a finite
number of options to choose from, would have at least one such equilibrium.
His insights expanded the scope of economics. In perfectly competitive markets, where there are no barriers to
entry and everyone's products are identical, no individual buyer or seller can influence the market: none need pay
close attention to what the others are up to. But most markets are not like this: the decisions of rivals and
customers matter. From auctions to labour markets, the Nash equilibrium gave the dismal science a way to make
real-world predictions based on information about each person's incentives.
One example in particular has come to symbolise the equilibrium: the prisoner's dilemma. Nash used algebra and
numbers to set out this situation in an expanded paper published in 1951, but the version familiar to economics
students is altogether more gripping. (Nash's thesis adviser, Albert Tucker, came up with it for a talk he gave to a
group of psychologists.)
It involves two mobsters sweating in separate prison cells, each contemplating the same deal offered by the
district attorney. If they both confess to a bloody murder, they each face ten years in jail. If one stays quiet while
the other snitches, then the snitch will get a reward, while the other will face a lifetime in jail. And if both hold their
tongue, then they each face a minor charge, and only a year in the clink (see diagram).
There is only one Nash-equilibrium solution to the prisoner's dilemma: both confess. Each is a best response to the
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other's strategy; since the other might have spilled the beans, snitching avoids a lifetime in jail. The tragedy is that
if only they could work out some way of co-ordinating, they could both make themselves better off.
The example illustrates that crowds can be foolish as well as wise; what is best for the individual can be
disastrous for the group. This tragic outcome is all too common in the real world. Left freely to plunder the sea,
individuals will fish more than is best for the group, depleting fish stocks. Employees competing to impress their
boss by staying longest in the office will encourage workforce exhaustion. Banks have an incentive to lend more
rather than sit things out when house prices shoot up.
Crowd trouble
The Nash equilibrium helped economists to understand how self-improving individuals could lead to self-harming
crowds. Better still, it helped them to tackle the problem: they just had to make sure that every individual faced the
best incentives possible. If things still went wrong--parents failing to vaccinate their children against measles, say--
then it must be because people were not acting in their own self-interest. In such cases, the public-policy challenge
would be one of information.
Nash's idea had antecedents. In 1838 August Cournot, a French economist, theorised that in a market with only
two competing companies, each would see the disadvantages of pursuing market share by boosting output, in the
form of lower prices and thinner profit margins. Unwittingly, Cournot had stumbled across an example of a Nash
equilibrium. It made sense for each firm to set production levels based on the strategy of its competitor;
consumers, however, would end up with less stuff and higher prices than if full-blooded competition had prevailed.
Another pioneer was John von Neumann, a Hungarian mathematician. In 1928, the year Nash was born, von
Neumann outlined a first formal theory of games, showing that in two-person, zero-sum games, there would always
be an equilibrium. When Nash shared his finding with von Neumann, by then an intellectual demigod, the latter
dismissed the result as "trivial", seeing it as little more than an extension of his own, earlier proof.
In fact, von Neumann's focus on two-person, zero-sum games left only a very narrow set of applications for his
theory. Most of these settings were military in nature. One such was the idea of mutually assured destruction, in
which equilibrium is reached by arming adversaries with nuclear weapons (some have suggested that the film
character of Dr Strangelove was based on von Neumann). None of this was particularly useful for thinking about
situations--including most types of market--in which one party's victory does not automatically imply the other's
defeat.
Even so, the economics profession initially shared von Neumann's assessment, and largely overlooked Nash's
discovery. He threw himself into other mathematical pursuits, but his huge promise was undermined when in 1959
he started suffering from delusions and paranoia. His wife had him hospitalised; upon his release, he became a
familiar figure around the Princeton campus, talking to himself and scribbling on blackboards. As he struggled
with ill health, however, his equilibrium became more and more central to the discipline. The share of economics
papers citing the Nash equilibrium has risen sevenfold since 1980, and the concept has been used to solve a host
of real-world policy problems.
One famous example was the American hospital system, which in the 1940s was in a bad Nash equilibrium. Each
individual hospital wanted to snag the brightest medical students. With such students particularly scarce because
of the war, hospitals were forced into a race whereby they sent out offers to promising candidates earlier and
earlier. What was best for the individual hospital was terrible for the collective: hospitals had to hire before
students had passed all of their exams. Students hated it, too, as they had no chance to consider competing
offers.
Despite letters and resolutions from all manner of medical associations, as well as the students themselves, the
problem was only properly solved after decades of tweaks, and ultimately a 1990s design by Elliott Peranson and
Alvin Roth (who later won a Nobel economics prize of his own). Today, students submit their preferences and are
assigned to hospitals based on an algorithm that ensures no student can change their stated preferences and be
sent to a more desirable hospital that would also be happy to take them, and no hospital can go outside the
system and nab a better employee. The system harnesses the Nash equilibrium to be self-reinforcing: everyone is
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doing the best they can based on what everyone else is doing.
Other policy applications include the British government's auction of 3G mobile-telecoms operating licences in
2000. It called in game theorists to help design the auction using some of the insights of the Nash equilibrium, and
ended up raising a cool Pounds 22.5 billion ($35.4 billion)--though some of the bidders' shareholders were less
pleased with the outcome. Nash's insights also help to explain why adding a road to a transport network can make
journey times longer on average. Self-interested drivers opting for the quickest route do not take into account their
effect of lengthening others' journey times, and so can gum up a new shortcut. A study published in 2008 found
seven road links in London and 12 in New York where closure could boost traffic flows.
Game on
The Nash equilibrium would not have attained its current status without some refinements on the original idea.
First, in plenty of situations, there is more than one possible Nash equilibrium. Drivers choose which side of the
road to drive on as a best response to the behaviour of other drivers--with very different outcomes, depending on
where they live; they stick to the left-hand side of the road in Britain, but to the right in America. Much to the
disappointment of algebra-toting economists, understanding strategy requires knowledge of social norms and
habits. Nash's theorem alone was not enough.
A second refinement involved accounting properly for non-credible threats. If a teenager threatens to run away
from home if his mother separates him from his mobile phone, then there is a Nash equilibrium where she gives
him the phone to retain peace of mind. But Reinhard Selten, a German economist who shared the 1994 Nobel prize
with Nash and John Harsanyi, argued that this is not a plausible outcome. The mother should know that her child's
threat is empty--no matter how tragic the loss of a phone would be, a night out on the streets would be worse. She
should just confiscate the phone, forcing her son to focus on his homework.
Mr Selten's work let economists whittle down the number of possible Nash equilibria. Harsanyi addressed the fact
that in many real-life games, people are unsure of what their opponent wants. Economists would struggle to
analyse the best strategies for two lovebirds trying to pick a mutually acceptable location for a date with no idea of
what the other prefers. By embedding each person's beliefs into the game (for example that they correctly think the
other likes pizza just as much as sushi), Harsanyi made the problem solvable.A different problem continued to
lurk. The predictive power of the Nash equilibrium relies on rational behaviour. Yet humans often fall short of this
ideal. In experiments replicating the set-up of the prisoner's dilemma, only around half of people chose to confess.
For the economists who had been busy embedding rationality (and Nash) into their models, this was problematic.
What is the use of setting up good incentives, if people do not follow their own best interests?
All was not lost. The experiments also showed that experience made players wiser; by the tenth round only around
10% of players were refusing to confess. That taught economists to be more cautious about applying Nash's
equilibrium. With complicated games, or ones where they do not have a chance to learn from mistakes, his insights
may not work as well.
The Nash equilibrium nonetheless boasts a central role in modern microeconomics. Nash died in a car crash in
2015; by then his mental health had recovered, he had resumed teaching at Princeton and he had received that
joint Nobel--in recognition that the interactions of the group contributed more than any individual.
DETAILS
Subject: International; Game theory; Mathematicians; University research
Location: United Kingdom--UK
Classification: 9175: Western Europe; 8306: Schools and educational services; 5400: Research
&development
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Volume: 420
Issue: 9003
Pages: 59-60
Publication date: Aug 20, 2016
Section: Briefs
ISSN: 00130613
e-ISSN: 14768860
CODEN: ECSTA3
Document type: General Information
Document feature: Charts
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Algorithms and antitrust; Free exchange
Publication info: The Economist ; London Vol. 423, Iss. 9039, (May 6, 2017): 70.
ABSTRACT (ENGLISH)
Whereas explicit collusion over prices is illegal, tacit collusion is not--though trustbusters attempt to forestall it by,
for instance, blocking mergers that leave markets at the mercy of a handful of suppliers. [...]prices are transparent
in a way that renders any attempt to steal business by lowering prices self-defeating. [...]the product is a small-
ticket and frequent purchase, such as petrol. A cabal of AI-enhanced price-bots might plausibly hatch a method of
colluding that even their handlers could not understand, let alone be held fully responsible for. Since legal
challenges are tricky, argue Messrs Ezrachi and Stucke, it might be better to direct efforts at finding ways to
subvert collusion. A market with many and diverse competitors, human or algorithmic, is less likely to reach an
effortless, cosy consensus about what is the "right" price for sellers, and the wrong price for consumers. * "Virtual
Competition: the Promise and Perils of...
FULL TEXT
How price-bots can conspire against consumers--and how trustbusters might thwart them
MARTHA'S VINEYARD, an island off the coast of Massachusetts, is a favourite summer retreat for well-to-do
Americans. A few years ago, visitors noticed that petrol prices were considerably higher than in nearby Cape Cod.
Even those with deep pockets hate to be ripped off. A price-fixing suit was brought against four of the island's
petrol stations. The judges found no evidence of a conspiracy to raise prices, but they did note that the market was
conducive to "tacit collusion" between retailers. In such circumstances, rival firms tend to come to an implicit
understanding that boosts profits at the expense of consumers.
No one went to jail. Whereas explicit collusion over prices is illegal, tacit collusion is not--though trustbusters
attempt to forestall it by, for instance, blocking mergers that leave markets at the mercy of a handful of suppliers.
But what if the conditions that foster such tacit collusion were to become widespread? A recent book* by Ariel
Ezrachi and Maurice Stucke, two experts on competition policy, argues this is all too likely. As more and more
purchases are made online, sellers rely increasingly on sophisticated algorithms to set prices. And algorithmic
pricing, they argue, is a recipe for tacit collusion of the kind found on Martha's Vineyard.
Consider the conditions that allow for tacit collusion. First, the market is concentrated and hard for others to enter.
The petrol stations on the Vineyard were cut off from the mainland. Second, prices are transparent in a way that
renders any attempt to steal business by lowering prices self-defeating. A price cut posted outside one petrol
station will soon be matched by the others. And if one station raises prices, it can always cut them again if the
others do not follow. Third, the product is a small-ticket and frequent purchase, such as petrol. Markets for such
items are especially prone to tacit collusion, because the potential profits from "cheating" on an unspoken deal,
before others can respond, are small.
Now imagine what happens when prices are set by computer software. In principle, the launch of, say, a
smartphone app that compares prices at petrol stations ought to be a boon to consumers. It saves them the
bother of driving around for the best price. But such an app also makes it easy for retailers to monitor and match
each others' prices. Any one retailer would have little incentive to cut prices, since robo-sellers would respond at
once to ensure that any advantage is fleeting. The rapid reaction afforded by algorithmic pricing means sellers can
co-ordinate price rises more quickly. Price-bots can test the market, going over many rounds of price changes,
without any one supplier being at risk of losing customers. Companies might need only seconds, and not days, to
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settle on a higher price, note Messrs Ezrachi and Stucke.
Their concerns have empirical backing. In a new paper**, the authors outline three case studies where well-
intentioned efforts to help consumers compare prices backfired. In one such instance, the profit margins of petrol
stations in Chile rose by 10% following the introduction of a regulation that required pump prices to be displayed
promptly on a government website. This case underlines how mindful trustbusters must be about unintended
consequences. The legal headache for them in such cases is establishing sinister intent. An algorithm set up to
mimic the prices of rival price-bots is carrying out a strategy that any firm might reasonably follow if it wants to
survive in a fast-moving market. Online sellers' growing use of self-teaching algorithms powered by artificial
intelligence makes it even harder for trustbusters to point the finger. A cabal of AI-enhanced price-bots might
plausibly hatch a method of colluding that even their handlers could not understand, let alone be held fully
responsible for.
Since legal challenges are tricky, argue Messrs Ezrachi and Stucke, it might be better to direct efforts at finding
ways to subvert collusion. Trustbusters could start by testing price-bots in a "collusion incubator" to see how
market conditions might be tweaked to make a price-fixing deal less likely or less stable. A "maverick" firm, with
different incentives to the incumbents, might have a lasting impact; an algorithm programmed to build market
share, for instance, might help break an informal cartel.
Regulators might also explore whether bots that are forced to deal directly with consumers--say, through an app
that sends an automatic request to retailers when a petrol tank needs filling--could be enticed to undercut rivals. Or
they might test to see if imposing speed limits on responses to changes in rivals' prices hampers collusion. It may
be that batching purchases into bulky orders might thwart a collusive pay-off by making it more profitable for robo-
sellers to undercut rivals.
Never knowingly undersold
The way online markets work calls for new tools and unfamiliar tactics. But remedies have to be carefully tested
and calibrated--a fix for one problem might give rise to new ones. For instance, the more consumers are pushed to
deal directly with price-bots (to thwart the transparency that allows rival sellers to collude), the more the
algorithms will learn about the characteristics of individual customers. That opens the door to prices tailored to
each customer's willingness to pay, a profitable strategy for sellers.
Still, there is one old-school policy to lean on: merger control. There is growing evidence in old-economy America
that trustbusters have been lax in blocking tie-ups between firms. A market with many and diverse competitors,
human or algorithmic, is less likely to reach an effortless, cosy consensus about what is the "right" price for sellers,
and the wrong price for consumers.
* "Virtual Competition: the Promise and Perils of the Algorithm-driven Economy", Harvard University Press (2016)
** "Two Artificial Neural Networks Meet in an Online Hub and Change the Future (of Competition, Market Dynamics
and Society)" (April 2017)
DETAILS
Subject: Profit margins; Gasoline; Algorithms; Collusion; Economic models; Price cuts;
Competition; Antitrust
Location: Cape Cod Massachusetts Massachusetts
People: Ezrachi, Ariel
Volume: 423
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Issue: 9039
First page: 70
Publication date: May 6, 2017
Section: Finance
ISSN: 00130613
e-ISSN: 14768860
Document type: News
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Managerial Economics

Professor Shilpa Aggarwal

Digital Headstart Module

Post Graduate Programme in Management

2 The Regulators’ Best Friend 10

4 Snow Leopard Takes a Page from the 16

6 Coconuts Go Upscale, Boosting Price of 24

7 Apparel Industry Model Holds the Key for 25

8 Profit and Sauce: How Much do D.C. https://www.washingtoncitypaper.com/food/young-

9 Rent Control Needs Retirement, Not a https://www.bloomberg.com/opinion/articles/2018-

10 Rent Control is Crippling India’s Richest 28

11 Is Natural Gas too Cheap to Drill? https://perma.cc/4PJS-ZT5N

13 Why a Media Merger that should go 33

14 The Evolving Economics of the App (*) 37

15 How Uber could become a Nightmarish https://theweek.com/articles/675434/how-uber-

16 Chapter 14 E-book will be shared

17 Chapter 15 E-book will be shared

18 Chapter 16 E-book will be shared

19 Counsel of Protection: The Future of 39

20 Why Angel Investing is not for You” https://timesofindia.indiatimes.com/business/india-

22 The Secret Document That Transformed https://www.npr.org/sections/money/2012/01/20/1

23 Axing the Bell Curve: Why Microsoft, https://economictimes.indiatimes.com/axing-the-

24 The Case for Neck Tattoos, According to https://www.theatlantic.com/business/archive/2016

25 Taken for a Ride: Taxi Drivers 45

27 In Manhattan pizza war, price of slice 47

28 1 Pizza Slice is Back After a Sidewalk 50

29 Schumpeter: Jiopolitics: India’s Richest 52

30 Chapter 12 E-book will be shared

31 Prison Breakthrough: Game Theory 55

32 Free Exchange: Algorithms and Antitrust 59

33 Chapter 12 E-book will be shared

34 Why, for a Class of Bribes, the Act of https://mpra.ub.uni-

The American model of higher education is spreading. It is good at

thus quite different from the continental European one, which

Finance & economics Mar 31st 2005 edition

The regulators' best friend?

Mar 31st 2005

The rst regulation is largely apocryphal, a myth propagated by Euro-sceptic

dl “Professor lShilpaiAggarwal andi Professor

Cost-bene t analysis—which typically quanti es the attractions and drawbacks

Whether or not this is fair to President George Bush's administration, is it fair to

It breaks qualities down into quantities, di erences of kind into di erences of

The less sweet hereafter

“ Those who question cost-beneﬁt analysis doubt that a price

Fundamentally, it is not “anti-government” to weigh the costs of public action.

*“In Defence of the Economic Analysis of Regulation”. American Enterprise

†“Cost-Bene t Analysis”. Available at www.progressiveregulation.org

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Publication title: New York Times (Online); New York

Publication year: 2009

Publication date: Jun 11, 2009

Publisher: New York Times Company

Place of publication: New York

Country of publication: United States, New York

Publication subject: General Interest Periodicals--United States