Wednesday, March 31, 2010

The telecommunications regulator, Ofcom, has ruled that BSkyB must make two of its premier sports channels (Sky Sports 1 and Sky Sports 2) available to other distributors of television services at a reduced price. The regulator's concern is that BSkyB is abusing its monopoly position as a broadcaster of premier sports events.

In fact there is some competition. ESPN (another pay-TV operator) has the rights to certain premiership football matches, while other football competitions are broadcast by BBC, ITV and Channel 5. A reasonable amount of rugby is broadcast by BBC. Cricket's superb IPL competition is broadcast by ITV. The Hotbird satellite carries a huge amount of European sport free to air. But there is nonetheless widespread feeling that Sky does some cherry-picking. In this, Sky are supported by the sports bodies that themselves benefit from the broadcaster's financial clout.

Pricing in broadcasting is tricky. The general principle that welfare is maximised when price is set at marginal cost cannot be applied here - at least not without some modification. The marginal cost associated with a new subscriber is (virtually) nothing. If the subscription price were set at nothing, the broadcaster would receive no revenues and would not produce anything - unless, along the lines of a public service broadcaster, it were subsidised. So rules that are inevitably somewhat ad hoc have to take the place of general economic principles.

What, then, are the issues that need to be considered? The sports bodies gain from higher prices - up to a point. Much of the resultant surplus, ultimately, goes into athletes' pay. Likewise BSkyB benefits in terms of higher profits from the higher prices which, after all, it chooses to charge. Telecommunications firms that buy access to the premium sports channel in order to sell on to consumers would, however, benefit from lower charges, since this makes their package more attractive. Likewise, consumers would benefit from lower charges. Any consideration of the price that is best for society as a whole involves balancing these competing interests.

But the key is this: there are doubtless many consumers who would be willing to pay something for premium sport but who are not willing to pay current prices. If BSkyB could offer them discounted prices without alienating its current customer base, it would do so. The status quo is therefore inefficient because trades that ought to be made are not being made. This is what we call market failure, and such a situation is precisely what regulation is there to sort out.

Tuesday, March 23, 2010

An interesting article by Joseph Stiglitz argues against premature cutting of the budget deficit. Stiglitz suggests that 'prospects of a robust recovery are, at best, year or two away' and that at this stage 'reducing governemnt spending is a risk not worth taking'.

He notes that there is a difference between different types of expenditure, and that investment spending (on education, for instance) can lead to reductions in the budget deficit in future years. He also notes - and here is a crucial point - that the 'risks (associated with different policies on the budget deficit) are asymmetric: if these forecasts are wrong, and there is a more robust recovery, then, of course, expenditures can be cut back and/or taxes increased'.

Interestingly, Stiglitz makes specific comment on the UK: 'The UK's weaker performance is not the result of worse policies; indeed, compared to the US, its bank bailouts and labor market policies were, in many ways, far better.'

Wednesday, March 17, 2010

Barry Eichengreen and Kevin O'Rourke have been keeping tabs on the recession that started in 2008, comparing it with the Great Depression. Their early analyses suggested that the paths of the two events looked alarmingly similar. Their most recent update, available here, suggests that the global economy has pulled out of recession and that the pattern of economic activity now looks very different from that observed in the late 1920s and early 1930s.

Eichengreen and O'Rourke argue that 'policy deserves considerable credit' for the recovery. Moreover, they note that 'considerable excess capacity remains in a number of important economies. Exiting now from policies of stimulus in those countries would therefore be premature.'

Tuesday, March 09, 2010

The Association of Graduate Recruiters has published a new 'manifesto' for graduate recruitment. Its calls to action include the abolishment of the 50% target age participation rate for higher education, and a lifting of the cap on undergraduate tuition fees.

The manifesto has met with a mixed response, and has been criticised by both unions and government - not least because these groups see the economy as dependent on high skills, and so they support the 50% target.

A further recommendation in the manifesto is that tax breaks should be introduced for the employers of new graduates. The case is not well argued. Breaks given to employers conditional on the adoption of certain recruitment practices have often backfired, with employers shedding labour of other kinds in order to increase their hiring of the subsidised type of labour.