Collusion – meaning and examples

Collusion – meaning and examples

In economics, collusion occurs when rival firms agree to work together, e.g. setting higher prices in order to make higher profits. Collusion usually involves some form of agreement to seek higher prices. This may involve: Agreeing to increase prices faced by consumers. Deals between suppliers and retailers. For example, vertical price fixing e.g. retail price maintenance. Monopsony pricing – where retailers collude to reduce the amount paid to suppliers. Collusion between existing firms in industry to exclude new firm from…

Optimism post-Brexit

Optimism post-Brexit

As a general rule, I try to avoid politics. But, this summer has not been your typical British summer. Yes, the weather has been typically wet and miserable, but the political and economic climate has changed at a speed, not even found in a Jeffrey Archer novel. I started the referendum campaign a somewhat reluctant ‘Remainer‘ – aware of the failings of the EU, but dutifully reporting the economic benefits. As the campaign wore on I became more passionate…

Pareto improvement

Pareto improvement

A Pareto improvement occurs when an economic action leads to a net welfare gain, without anyone being made worse off. See also: Pareto efficiency Examples of Pareto Improvement Surplus savings used to fund education and training for unemployed workers. This enables the unemployed to find work and reduce the inefficiency of an economy with high unemployment. No-one loses out by using the nations surplus savings, but the unemployed who are now employable gain a big increase in economic welfare. By reducing unemployment, the economy is also more efficient and…

Germany’s current account surplus

Germany’s current account surplus

In 2015, the German current account surplus surged to 8.5% of GDP. A record level and a surplus which has implications for the Eurozone and global economy. Source: Bundesbank The surplus is primarily due to the surplus on trade in goods. Though in recent years, there has also been a surplus in primary income. This is mostly net income from foreign investment oversees. In the past few years, the…

Winners and losers from low interest rates

Winners and losers from low interest rates

With UK interest rates close to zero, who benefits from low interest rates? In summary, the main effects of low interest rates are: Savers will get lower interest payments on their savings. Borrowers, especially mortgage owners ,will see lower interest payments on their debt, increasing discretionary income. The government can borrow from the private sector at a lower interest rate, reducing interest costs on public sector debt. Banks find it harder to be profitable and attract deposits. This can adversely affect the quantity of loans. Therefore, although it is cheap…

Does cutting corporate tax rates increase revenue?

Does cutting corporate tax rates increase revenue?

The UK has proposed a cut in the rate of corporation tax from 20% to 15%, this would give the UK one of the lowest rates of corporation tax in the OECD, and proponents argue this could actually lead to higher tax revenues as more firms will invest in the UK. Therefore, although the tax rate falls, total tax revenue could rise. This is theoretically possible. If Apple, Google moved to the UK to benefit from a low corporate tax rate,…

House prices post Brexit

House prices post Brexit

How will UK house prices be affected by Brexit – in both the short term and long-term? In the past few decades, the UK property market has been characterised by a long-term rise in real house prices. UK house prices have risen faster than inflation – especially in London and South.  In fact, we could really talk about two separate housing markets – London and the rest of the UK. Summary In the…

Cash reserves of companies

Cash reserves of companies

In recent years, major companies have seen a significant rise in cash reserves. These are profits which are not re-invested or distributed to shareholders, but effectively saved. The largest cash reserves are found amongst major US IT companies, such as Apple, Microsoft and Google. These cash reserves have significant implications for economic welfare and income distribution in society. Some economists see these cash reserves as effectively deadweight welfare loss. The $2 tn of reserves sitting in unproductive ‘offshore’ accounts, rather than being reinvested into the economy. Net cash reserves Note: net cash reserve…