Wednesday, July 31, 2013

Nice graph showing the declining US manufacturers ("The Big 3") share of the car/truck market. I am looking for help to explain the 1980's and half of the 90's.

The first graph (from Carpe Diem) shows the change in market share for the US auto market between "The Big Three" and foreign producers from 1961 to 2012.  From start to finish, the steady decline in US share and the rise of the foreign share is quite dramatic.  The US producer share of vehicles produced went from over 80% to about 44%. Almost half as much.

However, upon closer inspection I noticed 3 distinct segments that were not prominent before I doctored the graph (apologies to Dr Perry).  I put directional arrows to show these segments. Don't confuse these arrows with mathematically correct trend-lines---I just eye-balled them.

I found the center segment to be a curious one.  From 1981 to 1996 the respective market shares stayed remarkably constant. On either side of this 16 year segment US share decreased significantly, more so post-1996.

Why the pause?  I am too lazy tonight to Google it.  Any educated/informed guesses?

Here is a list of the Top 15 companies that shelter profits offshore to avoid US taxes. I bet you love many of them. I hate when that happens...

Here is a list of the Top 15 US companies with corporate profits "sheltered" in offshore subsidiaries ostensibly to avoid US taxes. There is an estimated $1.7 Trillion dollars in profits held offshore by the Top 100 US multi-nationals.

These 15 companies account for 66% of those profits ($776B/$1.2T).  This is according to a Left leaning organization called US PRIG.

Source: US PRIG

Why are First Class passengers boarded first on an airplane? Why would you WANT to board first? Thoughts of a career Coach Flyer. Help me understand, please..

I read this short article on the eternal problem airlines have in getting airplanes boarded in a timely and efficient manner.  One comment toward the end  made sense to me and  made me wonder. I will put into my own words.

Why do First Class flyers get seated first and why would they want to? (Disclosure:  I have NEVER (not even once) flown in First Class).

You are guaranteed adequate overhead space.  You have to endure the awkward stares and the wayward bags of the great unwashed (me) as we slowly shuffle past you.   I am sure people and kids say the darnedest things to you as well and class envy rears its ugly head.

Why would you not want to board AFTER everyone else? Seems like it would send a power statement (isn't that why you fly First Class in the first place?) to those of us in coach---this ain't leaving until we are on board.

Monday, July 29, 2013

"Cut the price and you will sell more!!" is a common statement from students when studying Supply and Demand dynamics. This has more stretch to it than an Elastic band...

I produce widgets.  Under current market conditions, I produce and sell 1,000 widgets a day for $10.00 each. My daily revenue therefore is $10,000 (1,000 X $10).

Students often say "Cut the price so you can sell more and make more money!"  On its face, it makes sense BUT you have to consider (1) what your competition will do and (2) how many additional units will you sell as a result of the price cut.

If I cut my price 10% to $9.00 with the expectation that I will sell and additional 20% more widgets (200) then my revenue will be $10,800.  SWEET! I increased my revenues $800.  Hold on.  What will my competition think about this?  They won't want to lose existing customers, so they will match my price decrease to maintain their customer base.  If I end up gaining no new customers then my revenues will be $9.00 X 1,000 widgets = $9,000.  I am worse off.

Let's assume I am the only producer of widgets.  If I cut my price to increase revenues, I need to know not only my existing customers buying habits but my potential customers as well.  I need to ask myself 2 questions:

(1) How sensitive are my existing customers to a change in price relative to how many ADDITIONAL widgets they will buy from me?

(2)  How sensitive are potential customers to a change in price relative to how may widgets they will buy in the first place.

If I reduce my price 10% and increase the quantity demanded for widgets by 5%, then my new revenues will be $9.00 X 1050 = $9,450. I am worse off.

If I reduce my price 10% and increase the quantity demanded by 15%, then my new revenues will be $9.00 X 1,150 = $10,350.  I am better off.

Changes in Prices tend to induce changes in Quantity Demanded (on the demand side) of a good and/or service.  How responsive the demand side is to changes in prices determines the good or services relative "Elasticity".

Elasticity is a concept in Microeconomics we will cover in depth in class.

The purpose of this blog entry is to eliminate the bias you might have towards the simplistic statement that established our premise "Cut the price so you can sell more and make more money!".

Now you know... :)

Sunday, July 28, 2013

There is inflation going on in your toilet paper right under your, err, eyes...See here how you are getting short changed...

Nice examples of "hidden inflation" in this article.  If a producer reduces the size of the offering in a good but charges the same price as before, well, you are getting less of the product for a higher price if you look at it on a per unit basis (sheets of tissues, ounces of cereal, etc).

However, this could be offset if there is measurable quality improvements in the product that compensate for the reduced quantity.

I think the inflationary effect of decreasing the quantity is stronger than the moderating effect of quality improvements.  That is just a hunch based on the fact that one  is very easy to measure (how many sheets are there in a roll, box, etc) and the other is more subjective (how much does this improve my restroom experience).  Yikes! I don't really want to do that marketing experiment.

Toilet-Tissue 'Desheeting' Shrinks Rolls, Plumps Margins

Improved Product Means Fewer Sheets Needed to 'Get the Job Done,' Company Says

Kimberly-Clark Corp. KMB -0.08% recently rolled out new Kleenex tissue that it says is 15% "bulkier."It's also stingier. Each box has 13% fewer sheets than before. 
Consumer products makers call this "desheeting"—reducing the number of sheets of toilet paper or tissues in each package while holding retail prices constant. Earlier this week, Kimberly-Clark executives told analysts that they expect the practice to benefit the company's consumer-tissue unit in the second half of the year. 
Companies, particularly in the food business, have long shrunk packages as an alternative to hiking prices in the face of higher raw-material costs. Cereal boxes and bags of chips have in many cases become lighter over the years in what the food industry refers to as taking "weight out." A regular Snickers bar now weighs 1.86 ounces, down from 2.07 ounces in the past, which Mars says was done to cut calories to 250 per bar. Tropicana Pure Premium orange juice is now sold in 59 ounce bottles, versus 64 ounce cartons prior to 2010. 
The practice also has been a tried and true strategy for makers of tissue and toilet paper, allowing companies to quietly, and effectively, raise prices per unit.

Note: I do understand the difference between inflation and an increase in prices, especially if it is just one good/service or even a group of goods/services.  Just wanted to point out the difficulty and potential pitfalls in the way the government calculates the overall inflation rate.

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