Matt Nolan

Fuel taxes and firms: A cosy partnership

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January will be a quiet month for blogging here, but once the numbers start rolling out I’ll start writing again. One thing that I saw that interesting me was this short quote from Greg Mankiw’s blog:

“The nation’s largest business group said Tuesday it will oppose big tax increases in 2008 but might support increases targeted at improving aging U.S. roads, bridges and railways.”

Now many of our clients at Infometrics also feel the same way (many of which are transport firms). Why do you think firms’ currently support an increase in taxes on fuel but not on labour? Does this relate to the same factors that have made firms’ in NZ not care too much about an increase in the minimum wage?

Matt Nolan

Higher minimum wage – higher employment?

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Over at Not Sneaky they are discussing how a higher minimum wage may lead to higher employment when we have a firm that has market power in the labour market (hat-tip CPW). The argument is a very interesting one as economists often view a minimum wage as a way of placing a price floor, which leads to a lower level of employment and social ‘surplus’.

On the blog he uses this fine graph to explain the result. The purple line illustrates the path of wages and employment. According to that, there is a range where higher wages create greater employment in the labour market. Let me attempt to explain this.

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Will Taylor

Thoughts on the Warehouse Decision

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I found this point particularly interesting

“it is not possible to conclude that the relevant markets would be more competitive if the Warehouse Extra concept is pursued by the acquirer than if the Warehouse is not acquired”

I have always been of the opinion that the Extra concept would be much more effective in the hands of Woolworths or Foodstuffs due to the massive scale they have in the wholesale market. One of the supermarkets could then use the “halo” effect to the benefit of their grocery operations. I think this would lead to more competition than the status quo.

Another really interesting point is that the high court ditched the 5% price effect threshold in favor of 2% and still found that the acquisition wouldn’t substantially lessen competition. While this is interesting in it self, it also has profound implications for future mergers as the commission will have leeway to use different thresholds depending on the situation now that there is high court precedence for doing so

Matt Nolan

Are supermarkets too uncompetitive for Warehouse Extra?

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So the High Courts documents on the Warehouse merger ruling have been released. After skimming a couple of things I thought I would say something, then when I’ve actually read the document I can join in the criticism of it 🙂

It seems that the High Court overturned the Commerce Commissions decision as it felt that the Warehouse Extra concept would fail. As it would fail, it doesn’t matter whether one of the supermarkets purchases the company. Ok, thats cool, however they also go off and accept that there is probably tacit collusion between the two supermarket owners, Woolworths Ltd and Foodstuffs.

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Matt Nolan

The Halo Effect: Round Two

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In a previous post we discussed the Halo effect, and how the Warehouse was trying to claim it was their own idea. Since then, the Halo effect has taken on special importance as Woolworths Ltd (Aus) and Foodstuffs decided to appeal the Commerce Commission’s decision to refuse to let one of these firms buy the Warehouse.

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Matt Nolan

Corporations and welfare

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This cartoon tells us a number of things about the situation. Firstly, for Walmart to put this mans firm out of business, Walmart must have been relatively more efficient (ie, its costs were either lower or the value they added to the product was greater). Secondly, it tells us that the person that used to have a firm is worse off than he was when he did have his firm (as he now only makes enough to shop at Walmart, when before he could afford to go to boutique stores).

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