Posts Tagged ‘Dynamic Equity ETN’

‘I Don’t Believe It!’

Victor Meldrew was a fictional character in a long running UK TV series, ‘One Foot in the Grave’.  He is the archetypal elderly pensioner who complains about everything and anything. His catch phrase was ‘I don’t believe it’. Even to this day, such was the success of the series, that being accused of being a Victor Meldrew is a euphemism for being a cantankerous and whinging old man. My wife often mentions this in passing, whilst citing a recent Daily Mail article about the links between levels of cynicism and dementia. Extraordinary. ‘I don’t…’

 

As I approach my 50th birthday I find myself concerned that there are hidden consequences of new technology, and that innovation and competition are not always obviously good or should I just accept the status quo and let it pass me by.

 

In economics competition is universally viewed as healthy especially with respect to breaking up monopolistic policies and certainly there are many obvious clear cut instances of how the often down trodden consumer has benefited from competition. However, little is written of the often negative effects of competition leaving the consumer worse off in terms of quality and choice.

 

Economics 101. How it should work.

 

Firm A provides X service or materials to the consumer. They charge £100. Their costs are £60 and hence their margin is £40. This high profit margin brings another firm B into the marketplace keen to supply X service/materials for £90 despite having the same costs of £60, undercutting firm A and happy to have a £30 profit. Sometime later, firm C discovers new technology means of capital and/or labour which reduces the cost of supplying X to £40 and happy to have the same profit margin as firm B of £30 firm C can now sell X to the market place at just £70.

 

It’s a win, win for the consumer.  They are now getting X for £70 instead of £100.

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