In this series of articles, Professor Viard discusses the role of economics in everyday life in China and the world. Recently, I shipped a Hewlett Packard (HP) printer that I had purchased in Beijing to use in my office in Hong Kong. It arrived in good condition and I replaced the ink cartridges with new […]
Not Just Another Day in the Park
Theme parks are normally a place to enjoy a nice day out with your friends or family. However, in mainland China, theme parks may soon turn into a battleground. Wanda Group, a conglomerate that has opened several amusement parks across China over the last few years, has warned Disney about its theme park operations in China. It’s certainly not easy, if possible at all, for Wanda to make Disney unprofitable. Will lowering price at the cost of lowering its own profit help, or improve the quality and service is more practical? Maybe the best solution is to get along with the competitor.
Who Benefits from Alibaba’s Singles Day?
It is a good time to reflect on Singles Day, a shopping carnival initiated by Alibaba that has just yielded a record-breaking sales of $17.8 billion, exceeding that on “Black Friday” in the US. It looks like everyone benefits: vendors sell, buyers get cheap goods and Alibaba profits through advertising fees and transaction commissions. But consider: to sell more, vendors lower product prices and sacrifice per-unit margins, yet they might not be able to make up on volume, as most of the items purchased are durable goods and therefore most of the increased sales on Singles Day are probably shifting sales from earlier or later periods.
Keep Your Customers Happy but Disorganized to Prevent Buyer Power
As a seller, you may often encounter a situation like this: your customers gather and discuss the product they want to buy and one day they come to you and form a group, bargaining. As a result, you have to offer them discounts and other benefits. Harvard economist Michael Porter formalized this idea, called “buyer power,” in 1979. “Buyer power” is separate from the competition that you face and you should be careful to distinguish the two. Even if you face little competition, if your buyers are powerful then you are in trouble. Read our article to find out a solution.
Countering Supplier Power: Can an Employee be Too Good?
Managers instinctively think about the threat of competitors because they can push down prices and lower profits. But there are other threats to profits that managers should not ignore. One of these is the threat that suppliers can pose. This idea was formalized and called “supplier power” by Harvard economist Michael Porter in 1979. The idea is that even with little competition a firm can still lose profits to a supplier that has significant bargaining power. But the situation gets even more complicated when the people bearing the supplier power are its own star employees. What should a company do about that?
Market Entry: To Boldly Go Where Others Have Gone Before
The opening of the 1960s television show Star Trek which followed the voyages of the Starship Enterprise explained that its crew’s mission was “to boldly go where no man has gone before.” For firms the mission can be quite different as they often have to go where others have already gone. Unless a firm is the first to enter a market, it will face one or more incumbents upon entry. In such cases, how should a firm decide whether and where to enter? A look at how this worked out in the case of Uber and Didi Kuaidi in China’s competitive taxi hailing app market.
Price Wars and Why Companies Just Can’t Get Along
When I was in grade school, fights would occasionally break out on the playground. The commencement of these fights was usually hard to predict: one boy would make a remark to another boy that he did not like, the words would become more heated and then a fight would erupt. Fortunately, these fights usually subsided quickly with no one hurt. Fights between firms can also occur. It is usually in firms’ interests to cooperate and keep prices high. Despite this, firms sometimes engage in ruinous price wars. Although often as unpredictable as schoolyard skirmishes, fights between firms are sometimes a bit more predictable. Here’s how.
China’s Pollution Tax: Putting a Price on Pollution
In a bid to improve the environment, the Chinese government is considering imposing a pollution tax. But how exactly should it determine the tax amount?
Externalities and Minding Other People’s Business
When externalities are present, decisions optimal for the person making them are not necessarily optimal for society. So what can be done about them?
China Film Group and the Art of Playing Favorites in China’s Movie Market
How gatekeeping by the China Film Group is altering the dynamics of Hollywood blockbusters in China.
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