Author Archives: Linda Sun

Revised Post # 5: Google is not Monopoly

The case of European Commission accuses Google for violating the bloc’s antitrust laws is attracting more and more attention. It is the first time any regulator has filed formal antitrust charges against Google. The heart debase or complaint against Google is on its comparison shopping service called Google Shopping in its general search results page. European Commission along with Google’s competitors including Microsoft, Yelp, Expedia, TripAdvisor and Nokia, proved that Google is giving systematic favorable treatment to its own comparison shopping service that prohibits its competitors’ products and services. (WSJ1, WSJ2)

I don’t think it need more argue on whether Google is dominating or favoring its own Google Shopping. The answer is obviously yes. Take a simple example, when I searched ‘move box’ on Google for my moving, the first, or say the top one result jumping out is Shopping on Google stuff. However, I think a more core question should be, does it matter that Google puts its own shopping service on top on its general search results page?

European Union competition law concerns regulation of competitive markets in the European Union, particularly to ensure that corporations do not create cartels and monopolies that would damage the economic interests of society. And my argument is that though Google browser is in favor of its own shopping service by making it on the top of the search results page, Google does not impede the competition of the on-line shopping market.

In a practical issue, it is usually hard to identify or prove whether a company is dominating a market. The normal way to do it is testing what would be different, especially on consumer welfare prospective, if the company did not monopoly on that market. However, given the company already existed in the market, it is hard to exam what should have been be the result without monopoly.

Luckily, I have an off-the-peg comparative object, China’s on-line shopping market. China, well, blocks the Google searching system in its mainland area primarily because Google could bring too much anti-communist information from the ‘outside’ world, which is not desirable for the current Chinese society. But anyway, if I type ‘move box’ in a Chinese internet (the most popular internet browsers in China include IE, Sohu, 360 and Baidu), usually the shops who pay most for the browser’s company would pump out first. In this case, it is the companies who willing to pay for the browser is in favored by the search system. Actually it is quite similar with Google’s situation. While Google is in favor its own shopping service, an internet without Google is preferring the rich service.

There is no law citing that a company cannot support its own product. While Google is giving systematic favorable treatment to its own shopping service, it does not block others’. A customer could always find an ideal product as long as he is willing to spend time looking through the internet. What is more, if one does not satisfy with Google, he can always switch to another browser if he wants.

Lorenz Curve on U.S Universities (Blog 37, for Apr 18th)

In Economics, Lorenz Curve and Gini Coefficients are the two most commonly used measurements of inequality on wealth distribution. The Lorenz curve plots the proportion of the total income of the population on y axis that is cumulatively earned by the quintile of the population (x axis). Gini Coefficients is calculated as the area between the Lorenz Curve and the 45 degree line.

Lorenz Curve(Sources)

 

Usually, in a country it is a small portion of richest people holding the largest proportion of total wealth. For example, in the U.S, 2013, the lowest quintile have 3.2% of total household income, Second quintile hold 8.4%, third quintile have 14.4%, Fourth quintile have 23.0%, Highest quintile have 51.0%, which means that over half of the total household income is dominated by only 20% of the population. And top 5 percent people have 22.2% total household income. (Census Bureau).

One interesting thing is that the Lorenz Curve pattern is not only shown on population field, but also the wealth for U.S Universities have a similar distribution. By a WSJ article, the 10 richest institutions held nearly one-third of total cash and investments at four-year schools in fiscal 2014, while the top 40 accounted for two-third. What is more, the coffers of the nation’s 40 wealthiest universities, including Harvard University, Stanford University and the University of Michigan, are filling at a faster rate than those of other schools.

The reason behind such a mirror phenomena, which means that the wealth distribution among colleges mirrors the income distribution among population,  is easy to understand, and it actually is relative with the education quality. First, a good college such as Harvard, Stanford, UM attracts more outstanding students. Second, People who enter such education institutions usually come out with higher probability to earning more money. Third, in return, those alumni denote more money to their mother school which makes those college richer. Forth, richer school can afford more and better resources including professors, libraries and so on which could attract more outstanding students. If we check the most richest colleges, most of them are also top ranking schools. This is like a positive feedback system.

Some people worry that the rich schools get richer faster and the wealth gap between colleges is growing will makes poor people children enter such an education institution harder and harder, as they also have a higher tuition. Some people suggest that taxing those rich institutions like other businesses could solve the inequality among universities. Well, another idea is that the Government could make a joint education program between rich college and poor colleges. Sharing the education resources, but not the money.

Google is not Monopoly (Blog 36)

The case of European Commission accuses Google for violating the bloc’s antitrust laws is attracting more and more attention. It is the first time any regulator has filed formal antitrust charges against Google. The heart debase or complaint against Google is on its comparison shopping service called Google Shopping in its general search results page, and European Commission along with Google’s competitors including Microsoft, Yelp, Expedia, TripAdvisor and Nokia, proved that Google is giving systematic favorable treatment to its own comparison shopping service that prohibits its competitors’ products and services.(WSJ1, WSJ2, WSJ3)

I don’t think it need more argue on whether Google is dominating or favoring its own Google Shopping. The answer is obviously yes. Take a simple example, when I searched ‘move box’ on Google for my moving, the first, or say the top one result jumping out is Shopping on Google stuff. However, I think a more core question should be, does it matter that Google puts its own shopping service on top on its general search results page?

 European Union competition law concerns regulation of competitive markets in the European Union, particularly to ensure that corporations do not create cartels and monopolies that would damage the economic interests of society. And my argument is that though Google browser is in favor of its own shopping service by making it on the top of the search results page, Google does not impede the competition of the on-line shopping market.

In a practical issue, it is usually hard to identify or prove whether a company is dominating a market. The normal way to do it is testing what would be different, especially on consumer welfare prospective, if the company did not monopoly on that market. However, given the company already existed in the market, it is hard to exam what should have been be the result without monopoly.

Luckily, I have an off-the-peg comparative object, China’s on-line shopping market. China, well, blocks the Google searching system in its mainland area primarily because Google could bring too much anti-communist information from the ‘outside’ world, which is not desirable for the current Chinese society. But anyway, if I type ‘move box’ in a Chinese internet (the most popular internet browser in China includes IE, Sohu and 360, Baidu), usually the shops who pay most for the browser’s company would pump out first. In this case, it is the companies who willing to pay for the browser is in favored by the search system. Actually it is quite similar with Google’s situation. While Google is in favor its own shopping service, an internet without Google is preferring the rich service.

There is no law citing that a company cannot support its own product. While Google is giving systematic favorable treatment to its own shopping service, it does not block others’. A customer could always find its ideal product as long as he is willing to spend time looking through the internet. What is more, if one does not satisfy with Google, he can always switch to another browser if he want.

Being Cautious Investing in Domain Name (Blog 35)

There is an interesting article in today’s WSJ: Why Your Child Needs a Domain Name. In which the author argues that buying your baby a domain is a wise investment. “Having the ability to create your own personal page at your domain name could give your child a huge edge down the road. In fact, if her or she becomes the next Taylor Swift, their own domain name could be worth millions.” What is more, he argues that it will cause a lot of problems such as the huge cost of buying back, confusion for fans or the embarrassment for the person if something inappropriate is tweeted out, if the domain names get in the hands of others.

However, while it sounds like a good idea to invest in a domain name for one’s baby, I have to say that such an activity is not even better than buying lotteries.

First of all, as a commenter Ruby wrote: “most purchase services require annual fee upkeep though to maintain owning it.” You cannot simply put some money and then own the domain name forever. Take Goadddy for example, the average cost for a .com domain name is approximately $8-$10 per year. Certain extensions such as .tv and .vs range in the $20-$40 for a year registration. If the parents are ready to keep the domain name for their babies’ whole lives, then it will not be a small cost, especially for a family which has lots of kids. What is more, to keep your babies domain name unique, it is better to buy between three and twenty names with spellings and suffixes that are close to one’s primary address so that other people will not be confused with the name, which apparently will cost more.

Second, While there is probability that the children become next Taylor Swifts, there is also probability that the children become next Ted Bundys. Parents invest their money to their children’s name because they expect the babies’ names will worth fortune in future, but they forget that a real domain name could also be a disaster and causes many problems such as disclosure of one’s information, or attract unamiable persons.

Third, when we say investment, we mean a method of purchasing assets to gain profit in the form of reasonably predictable income and/or appreciation over the long term. However, since there is no guarantee that a name will be a valuable asset, why should one invest in it. Since the author also says: “Children will ultimately have a personal brand as adults no matter what they do”. Let children make their own decisions.

Promote Motion Picture Rating System in China (Blog 34, Apr 11th)

One of our classmates, Congyi Liu, pointed in his April 5, 2015 blog Say No to Japanese Amination that China should provide appropriate regulations for Japanese animations due to the culture invasion and unhealthy items that Japanese animations bring in. Coincidently, the Ministry of Culture of the People’s Republic of China recently announced a list containing 29 animations that will be abandoned, including Attack on Titan, Tokyo ESP and so on, even some world famous animations such as One Piece, Naruto and Detective Connan are under inspection. This Japanese animation inspection storm brings the debate on promoting motion picture rating system to the public again.

The Chinese mainland does not have a rating system. Only films or TVs are passed as “suitable for all ages” could be released. State Administration of Press, Publication, Radio, Film and Television of the People’s Republic of China (SAPPRFT) is the executive department who responses for checking the films or TVs. If a movie has “improper” content (it is SAPPRFT decides what is “improper”), then the normal way to deal with is cutting the inappropriate part and playing the “purified” movie. Or sometimes worse, the TVs or the movies will never get a chance to show. Take James Cameron’s film Titanic as example, the part of Jack painting Rose (who was naked) was cutting out. By the way, Cameron once joked in a talk show: “They (SAPPRFT) were afraid that the Chinese man would actually be reaching out towards the screen and would interfere the enjoyment of the audiences sitting next to them… But we made twenty million dollars in two days in China so I am going with their edits.”

Anyway, my point is that from the market development perspective, China really should consider setting up the Motion Picture Rating System, instead of abandoning or editing those arts.

First of all, the rating system will allow more diversified movies and TVs into  Chinese market, both from abroad and created by Chinese, which could develops the Chinese entertainment market. Xiaogang Feng, one of the most famous movie director in China once pointed out that he is suffering with ‘Chinese inspection system’. There are so much things he wants to express in his movie but he can’t, because it may violate the inspection system. Besides, many films will not integrated anymore after the ‘purification’ process. Given the rating system, most animations, TVs and films will be free. What is more, the outstanding foreign arts could compete with Chinese local ones and make them improve.

Second, differentiate with what people may thought, free the movie and TV market could reduce criminal. A empirical study by Milton Diamond showed that rape and other sex crimes have not increased following the legalization and wide availability of pornography, instead, the study found that the incidence of child sex abuse has fallen since 1989 when child pornography became readily accessible. When Chinese government worries about its people may get containment by the “improper content”, actually it is the “desire for unknown” make people crime.

However, what is hiding behind Chinese current movie/TV system is the current political system. Yun Chen, a leader of Chinese Communist once said: During the reign of Nationalist party, they made a press law. We (Chinese Communist) studied it carefully, seek loopholes from it carefully and took advantage of loopholes in the law. Now we are in charge. I think it is better without a press law, thus people cannot take advantage of it, and we can control what we want to control.

 

 

 

 

 

Foreign Hires Do Not Take Qualified U.S. Workers’ Jobs Away (Blog 33)

H-1B is a non-immigrant visa that allows U.S. employers to temporarily employ foreign worker in specialty occupations. Demand for such visas (i.e. skilled-workers) has been exceeding annual supply in recent years, and critics say qualified U.S. workers are displaced by cheaper foreign hires through the program (WSJ, April 7th). However, from my perspective, while the H-1B selection process gives foreign workers chances to work in U.S, those skilled foreign hires didn’t take local job opportunities away.

First of all, the H-1B visa quota and H-1B cap systems have set a limitation for the maximum number of visa that can be released each year, which actually could be seen as a safe net for American job searchers. Look at the chart below (Sources from h1base.com)

H1B Cap statistics

Since 2005, the H1B cap number keep 85,000. Even though the dates which  reflecting the duration and speed that the cap was reached (each year H1B visas start to be filed from April 1st on wards) is becoming earlier and earlier (which means more and more foreigners applies for the visa), the congress rejected a proposal in 2013 which requires to raise the annual cap to 110,000, mainly to protect the local people. What is more, recently the job openings in U.S. climbed to 5.13 million in February (WSJ, April 7th), the 85,000 foreign employer quota only takes 1.7% of the job market. Thus Americans should not view those foreign hires as threatens.

Second, it is actually the companies who want to hire those foreigners filing the H1B application instead of themselves, and because the application process is time consuming and requires lots of works, companies in fact would only spend time and money on those ‘over-qualified’ people. h1bwage.com has over 1000 H1B individuals records about their job statuses and salaries. I went through several pages, and find that most of them have annual salary over $100,000 and take the jobs such as manger, designer and analyst. Companies prefers those foreign employers because they are smart, hard working, specialized, and most importantly, they have high cost-effective. In fact it is the jobs take them instead of they taking the jobs.

Third, those foreign hires usually are experts in some specific fields where not many people is able to do the work. They did not take job opportunities away from local people, instead, it is those foreign hires are compensating the match gap. While the number of job openings in the U.S is climbing, the number of Americans actually getting hired for jobs are declining – failing to 4.9 million in Feb from 5 million in Jan and 5.2 million in Dec (WSJ, April 7th). The phenomena that persons who are looking for the jobs do not match the jobs which are available is quite common.(i.e. Low matching efficiency problem). One way to solve such a problem is importing foreign workers.

Shifting California Agriculture Industry Gradually Out of State (Blog 32)

California has suffered forth droughts in the last five decades. While droughts occur intermittently especially in a state like California where weather is the chief source of water woes, some people believe that the water shortage are compounded by bad policies– the misallocation of resource.

Based on a WSJ article, the policy makers made two major mistakes that intensifies the impact of the drought. First, diverting the water which should have been used to replenish reservoirs to ecological purposes, such as protect fish in the Sacramento-San Joaquin River Delta. Second, green groups won’t allow new storage such as putting water storage and building water infrastructure projects regardless – and perhaps because – of the benefits. However, From my perspective, the policies makers did not make anything wrong. The essential problem is that people built several major population centers, Los Angeles, San Francisco, San Diego and so on in a desert. With people in the early years transported water from far away area to meet its water demand, the natural water system has been being damaged. Now since the error has been cast, maybe shifting California agriculture industry gradually out of the State is an outlet.

First of all, California is never an ideal agriculture State due to the uneven distribution of water resources and population. California-water-2013The history of California is a history of water wars. As early as 1800s, Los Angeles began to run out of its water supply. The mayor at that time, Fred Eaton, then built an aqueduct and transported water from Owens Lake, made which dry out by 1926. After that, Los Angeles diverted water from further north area, Mono Lake, and whose ecology has been being threatened since then. People critics that environmental rules restrict water pumping to reservoirs south. But the rules are right. From environmental as well as human being subsistence perspective, to protect the ecology of the north California, which is destroyed by human activities, transporting water from south to north should be abandoned.

Second, the agriculture activities in California is using too much water. Based on PPIC (Public Policy Institute of California) report, water in California is roughly shared across three main sectors: 50% environmental, 40% agricultural and 10% urban. Where environmental water falls into categories such as water in rivers protected as ‘wild and scenic’, water for maintaining habitat and so on which provides multiple benefits. The water used in agriculture sector is beyond what should be used in California. Other societies have learned better how to cope with water shortages such as desalination plants and pipe irrigate. By the way, Greg Mankiw posts a simple solution in his blog to solve water shortage: Raise the price of water. While I agree that it is a good idea to save water, it cannot solve the long-term drought.

Revised Post #4: Changing Car Airbags to Axes to Save Lives

The effect of seat belt and air bags on car crash has a long debated history. On the one hand, seat belt keeps driver/passengers staying at seats and airbags make them safe when car crash happens, which decreases traffic fatalities. On the other hand, it has been suggested that due to compensating behavior, drivers drive faster when they have security precautions and closer to the vehicle in front, which increase the probability of an accident and therefore put non-occupants, namely pedestrians, bicyclists and motorcyclists in greater risk (Peltzman, 1975).

But what is the ultimate overall effect of seat belt and airbags on traffic fatalities in practice? There is tons of paper examining the effect of mandatory seat belt law and airbags, and reaching different conclusions. In Alma Cohen and Liran Einav’s paper(2001), they control the endogeneity of seat belt usage and find that it decreases overall traffic fatalities. While the compensating behavior theory, which suggests that seat belt use also has an adverse effect on fatalities by encouraging careless driving, is not supported by the data. McCarthy(1999) finds that a mandatory seat belt law increases the number of fatal accidents. Bhattacharyya and Layton(1979) find that seat belt law have significant negative effect on traffic fatalities.

Though there is no common conclusion on the overall effect of seat belt and airbags on traffic fatalities, I think there is another mean to force drivers drive more carefully, and it could reduce traffic accident effectively–Changing all  cars’ front airbags to an axe.

Yes, you did not misunderstand my point: Changing all cars’ front airbags to axes (blade, needle or whatever have an attack effect) could reduce traffic accidents effectively. I have reasons.

First, just imagine, what would you do if you know that your car has an axe installed in front of you, and once a harsh impact happens the axe will pump out? No doubt, drive as carefully as possible and try to avoid any potential car accident. In fact, installing an axe is just like having a police seating beside the drive, but with a much more cost when the driver didn’t pay attention on the traffic. A police could at most give a ticket to a careless driver, while an axe could cost the driver’s life. By making the cost of careless driving infinitely large, no one will drive carelessly.

Second, unlike airbags which save occupants’ lives but increase the risk on non-occupants by compensating behavior theory, an axe lowers the possibility of having an accident fundamentally. Threatened by the axe, drivers will drive more consciously and cautiously, and they will not compete with pedestrians, bicyclists or motorcyclists anymore (drivers are ‘disadvantage group’ now). Thus this change also saves non-occupants

Third, an axe installment helps kicking out bad drivers–positive selection. If someone is a rookie, will he dare to risk his life to drive? No! In this way, the green hand on road will decrease significantly hence increase the traffic safety. What is more, it could be a great chance to develop public transportation system, since there will be less people who want to buy and drive a ‘threaten car’.

In conclusion, while installing car airbags as well as seatbelts is a way to minimize the damage after car accidents happened, another way to consider this question is how to minimize the occurrence of car accident. Changing car airbags to axes is a solution.

China to Begin Deposit Insurance (Blog 30)

Thesis: Deposit Insurance system is theoretically good for China, but some consequent actions also need to take to make sure it works.

Deposit Insurance is not a new word for Americans, who established a national deposit insurance system as early as 1933 during the great depression period, and even before that various deposit insurance scheme based on self-regulation were also tried out. But China did not introduce such a policy until recently. On Tuesday China detailed a plan to launch a deposit-insurance system in May and which is seen as a prelude to liberalize financial system (WSJ, Mar 31th).

Most people are excited about the news. For the public, deposit insurance is another safety lock for their money saved in the bank. China has one of the most amount of saving in the world. Up to 2015, the total saving is around 122 trillion yuan ($19.654 trillion). Based on the Chinese Center Bank calculation, the up-to 500,000 yuan ($80,558) deposits limit could cover 99.63% people’s all deposit. For the banks, especially those small and private banks, it is a chance to enlarge their clients. since for those people who have more than 500,000 yuan deposit in one bank, it is time that they shift part amount of money to other institutions in case the deposit insurance cannot cover lose, which give chances to some small banks. For the central government, deposit insurance scheme frees the government from the role of ‘invisible person in charge’. Before deposit insurance, it is the central government who takes duty and pays for the clients when a bank goes to bankruptcy (it also explained why no bank has bankruptcy in China before, government is their supporter). Now the central government does not have the burden. What is more, deposit insurance encourages the competition among banks which is good for market.

However, people may over emphasis the advantages of deposit insurance. First, the deposit insurance requires banks to pay a certain amount of insurance premium, given that the current deposit-reserve ratio is around 20% in China, the running cost for banks are going to increase hugely. To overcome the cost problem, banks may charge a higher service fee to clients. Second, deposit insurance bring moral hazard problem. Banks have more incentives to risk clients’ money since they have insurance as their back up, plus that they need to make more money to compensate the insurance premium. Most importantly, the core goal of deposit insurance is to protect depositors’ money. Being differ from American free market, the saving account in China actually already been in shield by the central government even without deposit insurance. Personally thinking that most Chinese never worry about that the banks are going to bankruptcy and they are going to lose deposit given the government is supporting behind. Thus introducing deposit insurance does not make any difference for depositors or banks if the central government does not exit.

Time is the Best Treatment (Blog 29)

In the WSJ article Why the Best Doctors Often Do nothing, H. Gilbert Welch argues that the good doctor is not the one that always recommends doing something. Because some problems will resolve on their own while others are better left along. A quick and arbitrary action such as trying medications or ordering tests is just too easy for the physician, and it is too easy for the patients to get somewhere they do not want to be.

Mr. Welch argues the problem from the view of a doctor or those who have some medicine background. Right, sometimes the best treatment is tincture of time, there is nothing much a doctor can do. However, patients, especially those anxious ones, usually just cannot buy it. People feel pain and believe there is something wrong with their body. By seeing a doctor, they have two goals: First, make sure there is something wrong with their body. Second, find a way to fix it. On the other hand, doctors know there is nothing to do to help the patient except the tincture of time. Then here comes the dilemma: Running a series body test such as trying medications, ordering test or referring to specialists could let the patient believe what is wrong with their body, but it is a waste of time and money–After all the doctor has know what is wrong and there is nothing he could do. If not running the test, however, the patients probably will not believe the doctor and classified the doctor as a bad doctor.

In fact, This dilemma is just like a high cost signal problem. Due to the asymmetric information — doctors have professional knowledge while patients do not, the body exam result becomes a signal to support the diagonal of the doctor. However, the cost of sending such a signal, i.e. running the test, trying medications or referring to specialists is too high. On the one hand it costs the hospital’s resources including doctors, techniques, medicines and so on. On the other hand it also bring new risks to the patients: as first-dollar insurance coverage disappears, money will come out of patients pockets. What is more, some extra medicine as well as the test is not good for patients health.

Luckily, there is a simple way to solve the problem: Creating a new signal that could support the diagnose of the doctor. The easiest one I could think about, and has also be used widely, is the recheck strategy. Doctors know that the patients would not believe there is no medicine that could help them, and the doctors do not want to order unnecessary and harmful test or medicine either. Thus doctors send out a signal: Ok, if you have problem after a year, come back again. Thus next time when you see a doctor who tell you that there seems nothing wrong with you, but you come back later if continuously paining, don’t think that the doctor does not know what is wrong, maybe it is just a signal that time is the best treatment.