Content creation

Many companies are competing in the content creation market. Apple, Netflix, Disney are all offering subscription services to their clients. The price for subscription is between $5 and $10 per month. This is not cheap, if we combine all music, game and film contents. At the moment, it seems these companies are competing for creating better contents instead of prices.

Price competition is the easiest competition strategy but also it is the least profitable strategy. Once one company starts to launch a price competition, the others will follow and the price is racing to the bottom. Under such circumstance, there will be no winner until someone wins the entire price competition and get the whole market share. Such competition will not help companies to earn profits for a long period of time. So they are competing for creating better contents to attract more clients.

These companies are investing millions of dollars in creating good contents. They make their investment based on how many subscribers they expect to have given the expected quality of their contents brought by the investment they make. Of course, they are trying to make enormous investment to create very good contents, so they may suffer losses for a short period but win a significant market share.

However, when every company in the business has enormous resources, they do not want to play the game so aggressively. Then their success is based on the return from the contents they create, and it is a very risky investment since the success of contents is dependent of too many heterogeneous factors.

Who is going to buy bonds with no interest?

Germany is planning to sell 30-year bond with no interest at all. It sounds odd as it means whoever buys the bond will pay a price for holding the bond and get back his or money after 30 years. Why would anyone do so? They can simply save their money in a saving account and even get more money in 30 years as banks generally pay interests. Saving in a bank account could almost be assumed to be risk free; however, this is not absolutely risk free. In finance, the risk-free rate is considered to be the 10-year UK bond yield or the 10-year US bond yield. At the moment, they are not zero at the moment; anyone who buys the zero-interest rate bond must believe these German sovereign bonds are less risky than the 10-year US bond or the 10-year UK bond.

Why do some people believe the German bonds safer than the US bonds or the UK bonds? Germany is an economy which is different from the UK economy or the US economy and it is a strong economy. In addition, comparing with the increasing budget deficit in the US, the German budget deficit seems to be much under control. Moreover, the political environment surrounding Germany is rather stable and predictable. These elements and more make the German sovereign bonds attractive to some investors.

In addition, the German banks are setting very low interests and the zero interest rate may also be a cause of the general low interest rate environment as well.

Maybe Andrew Yang is correct

One of the Democratic president candidates, Andrew Yang, is not as popular as Joe Biden, Elizabeth Warren or Bernie Sanders is but I am very interested in one of his proposals. He proposes that if he is elected, he is going to give every American $1000 a month. It seems that he is buying votes; however, the reason he gives for this policy proposal is very reasonable. He thinks that AI is going to replace the majority of our current jobs and people need to be compensated.
Such future is very likely and even it may come sooner than we estimate, since the rate of AI replacing human jobs is likely to accelerate and we are not not finding more new paid jobs for humans. If people are out of work, they will not be able to afford their previous lifestyle, so the demands for all kinds of goods will significant decrease. When the population does not have sufficient incomes, the firms are not able to earn as many profits as previously. Under such circumstance, it may be reasonable to consider Andrew Yang’s proposal.
I think his proposal has one major issue, which is where the money comes from. He suggests that the money coming from the firms which benefit from the development of AI; however, if the firms no longer have sufficient numbers of consumers, they will not earn sufficient profits to pay for the $1000 plan.

What determines consumers’ demand?

Demand and supply are the two probably most important concepts in economics. Demand is determined by consumers’ preference and price. In the majority of cases, when a product’s price goes down, the demand for this product will increase. However, what determines if a person demands the product at a given price is this person’s preference. There are many factors determining a person’s preference and people’s preferences vary across different individuals. Often these factors can be very personal. For example, if someone wants to buy a pair of headphones, the sound quality provided by a pair of headphones is not necessarily consistent, as the performance may vary based on what song the user is listening to, therefore how much this person is willing to buy a particular pair of headphones can depend on his or her preference of music. Moreover, his or her preference may also be influenced by his or her work. If his or her work requires a lot of travelling, he or she may want a pair of noise cancelling headphones and is likely to value noise cancelling headphones mor than those who do not travel so often.
Therefore, a person’s preference is based on his or her previous experience and expectation about the future. Let’s focus on how a person forms expectation. People generally form their expectation based on what they see at the moment, what they have learned and experienced. What they have learned and experienced can also be seen their experience so far. What they see at the moment depends on their accessibility to information. A person’s accessibility to information is based on their network connections, jobs. However, these elements (even including experience) may depend on people’s family and background.
If the hypotheses are true, then we can use the population characteristics to model the population preference as a whole, due to all factors are correlated with people’s background and family, which are known objectively.

Who is paying for tariffs?

Tariff has become one of the hottest topics at the moment since the US president, Donald Trump, decided to lower the US trade deficits. Tariff is a way to lower trade deficits, but it does not work exactly like what it is like in the president’s tweets. The US president’s tweets often give us such impression about tariff that China is paying money to the US government when the Chinese companies export certain products to the US. This impression inaccurately explains how tariff works. Tariffs lower trade deficits by making foreign products more expensive, so the domestic consumers will be less willing to pay foreign products comparing with domestic products. When people consume fewer imported goods and services, the trade deficit will be lowered. Then although tariff is hurting the Chinese exporters significantly due to the weaker demand, it seems that the domestic consumers are paying for tariffs, as they determine the demands for imported goods and the companies are very likely to transfer the increased costs caused by the tariffs to their consumers.

The challenges of breaking into emerging markets

The emerging markets are generally developing at faster rates than the developed countries do, which means the population in these countries are becoming richer and richer. When people become richer, they can afford more goods and services, so companies can potentially sell more goods and services in these countries. China is a great example, when the Chinese economy has expanded to become the world second largest, companies can earn enormous profits from a share in the Chinese market. However, not all companies can enter an emerging market successfully, there are several potential challenges.
First, the cultural difference between the emerging markets and the developed world can be very wide that misunderstanding could easily lead to a huge business failure. For example, people from different countries can have different tastes and habits, popular items in one country may not be popular in other countries. We do not even need to talk about he difference between the emerging markets and the developed world that the UK and the USA, which are the sister countries, have different cultures and consumer behaviour. Best Buy failed in the UK and Tesco failed in the USA but both of the two companies are successful in their original countries. Secondly, in the emerging markets, some local incumbents can be more competitive than the multinational companies, because the local incumbents sometimes have stronger links to the local resources via social networks. For example, the multinational dairy companies fail to continue their successful stories in India where the milk production is the biggest in the world. Thirdly, although emerging markets are fast growing, it does not mean that emerging markets have all sufficient infrastructure to make everything possible in the developed world also possible in the emerging market. Fourthly, the average income for ordinary people in the emerging markets may not be high enough to have similar demands like what people demand in the developed world. This is why Apple has not gained a significant market share in the smartphone market in India.
Overall, these challenges often exist when companies are trying to break into new markets. Usually if a multinational company fails to break into a new market, it can just leave since it is already making huge profits elsewhere in the world; however, if a multinational company fails to break into the emerging markets like India and China, it will lose huge potential in its business comparing with the successful companies.

What does the term “tech company” mean?

Before the 2007/8 financial crisis, the banking sector was the sector which attracted the most attention from investors; nowadays, investors focus on the tech sector, the top three most valuable companies are all from the tech industry. This is not new actually that during the dot com bubble, many companies, which would be tech companies at today’s standard, attracted enormous investment. However, there is one key difference between today’s market and the market during the dot com bubble. Today the definition of a tech company has been quite broad while the dot com companies are merely those which have websites on the Internet. Tesla is a very good example that can help us understand how we define a tech company. Tesla can be seen as an auto company; however, if it was just a normal auto company, its market value would not be so high. Because it is seen by many as a tech company, its share price rocketed.

Tech companies nowadays are defined as those which use new technology or concept (WeWork) and have the potential to reshape the current experience. Let’s still use the Tesla example. Tesla is an auto company, but unlike traditional auto companies, Tesla produces electric vehicles by robots. Furthermore, Apple may be a better example. It is a tech company since it was founded, and it definitely reshape the world phone industry and it is fair to see that Apple invented the modern-day smartphone. Other successful tech companies, such as Netflix, Spotify, all reshape consumer behaviours to some degree. Once the behaviours are changed, for a short period, the tech companies will have monopoly power; then when the competition is increasing, they will still be able to maintain some degree of powerful market power for a long period. Such potential makes tech companies attractive to investors.