Marshallian Industrial Districts and the Rise of the Internet

Recently I attended a Conference for the 40th Anniversary of the Cambridge Journal of Economics where a talk was given on “Industrial Districts, Organisation & Policy”. This article is a summary of some of the discussion from this talk as well as my further thoughts on extending Marshallian Industrial Districts to incorporate the internet. What Read more about Marshallian Industrial Districts and the Rise of the Internet[…]

Strategic Pricing

This article will explore an overview of pricing strategy. We begin by explaining the simple Cournot and Bertrand games, which are game theoretic analyses of a firm’s pricing strategy. With this information we proceed by explaining what strategic complementarities and substitutes are before looking at a paper by Fudenberg and Tirole entitled “The Fat-Cat Effect, Read more about Strategic Pricing[…]

What is the WACC?

The weighted average cost of capital (WACC) is simply an average cost of the two types of capital: debt and equity. It tells us the amount an investor would need in compensation to invest in a project. Therefore if we were to offer a lower return than the WACC, we would find that we have Read more about What is the WACC?[…]

Efficiency

Economists have an affinity for the concept of efficiency, but often this is quite a vague concept. In this article we attempt to explain a few different types of efficiency/inefficiencies and show the different situations in which the word “efficiency” should be used. Before we start it is important to remember why inefficiencies are bad Read more about Efficiency[…]

What is a Cobb-Douglas Function?

The Cobb-Douglas function has many applications in economics; from being a well-behaved preference in microeconomics to a production function in macroeconomics. It is named after Paul Douglas, an American Congressmen who was researching labour and capital shares and asked Charles Cobb, a mathematician, for help in formulating this into a function. In this article we Read more about What is a Cobb-Douglas Function?[…]

Predictably Irrational

I have just finished reading Predictably Irrational, a book by Dan Ariely on why economic thinking is flawed due to its failure to include behavioural economic concepts. In economics the actions of people are summed up by Homo Economicus, an imaginary figure that is completely rational and bases all its actions upon these rational foundations. Read more about Predictably Irrational[…]

Why is Competition Good?

Firms have to be competitive in order to keep profits up and to remain in business. If they didn’t keep prices low then other firms could enter the market and undercut the incumbent firm, thus taking away its market share and supernormal profit. Alternatively rivals may do the same. These low prices benefit consumers and Read more about Why is Competition Good?[…]

Limitations of the Concentration Ratio

An evaluative point to the use of the concentration ratio is that there may be problems defining the market. If a competition watchdog used the ratio to measure whether or not a firm is defined as a monopoly (if the ratio produces a result greaterthan 25%) how does it decide the width and depth of Read more about Limitations of the Concentration Ratio[…]