Why mobile customers are better off under democratic govts
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The entry of Reliance Jio has revived India’s telecom wars which include both pricing as well as efforts to influence policy to deal with competition.
A recent paper by Mara Faccio and Luigi Zingales, professors of finance at Purdue and Chicago universities, shows that government intervention in telecom markets is a common phenomenon in most countries.
The paper is based on data collected from 148 countries and argues that efforts to boost competition in the telecom sector can be beneficial to both consumers and the government in terms of revenues. The paper also says that democratic governments tend to adopt policies which encourage competition and hence benefit customers. In less democratic regimes, politically-connected telecom operators garnered greater revenues by distorting rules in their favour and restricting competition.
More and more customers are taking to Twitter to express their grievances these days. Is this likely to be an effective strategy? When is a company likely to respond to user feedback? A recent paper authored by Joshua S. Gans, Avi Goldfarb and Mara Lederman from the Rotman School of Management at University of Toronto have examined data on tweets to US airlines to answer this question. The researchers found that attempts to discipline companies for poor service or quality were most effective in concentrated markets where the value of retaining customers was higher. The researchers used on-time performance as a mark of service quality, and found that tweet volume increases when quality deteriorates. Airlines, on the other hand, were more likely to respond to tweets in markets where they had a larger share in the market. Users who received a response were more likely to tweet to that airline in the future
Read here: Exit, Tweets and Loyalty
One aspect of Narendra Modi’s note-ban policy, which came under a lot of criticism, was the change in size of new currency notes, as it created a necessity to recalibrate ATM machines and added significantly to the cash crunch in initial period. J.P. Koning, an economist from Canada, has finally offered some justification for the move. He argues that the decision to reduce the note size is a sensible one, and is in line with modern practices. In India and in many other countries, the size of the currency note increases as denomination rises. This would have made the Rs2,000 note one of the largest in the world—32% larger than a US$20 bill. Such a note would have been expensive to print. Over time, ordinary citizens would have to incur a high cost while handling and storing such large notes. Koning, too, however, is critical of the decision to combine the two decisions of aggressive demonetisation and note size reduction.
Read here: The Shrinking Rupee
2016 also marked the completion of 25 years of economic reforms in India. One of India’s finest economists Pulapre Balakrishnan currently a professor of economics at Ashoka University, has written a paper in the latest issue of Economic and Political Weekly to evaluate whether economic reforms have delivered on their promises. Balakrishnan lists many benefits of economic reforms the gist of which has been the Indian economy achieving high growth rates while managing to avoid any severe crisis like the balance of payment situation in 1991. The paper also cautions against many challenges though calling for a focus on agriculture and the workforce engaged there and thinking of more ways to rejuvenate domestic demand rather than just relying on the promise of exports. The paper lists India’s “persistent food-price inflation as something unexpected for a country being hailed by some as a rising super power”.
At the World Economic Forum in Davos this week, China’s president, Xi Jinping, emerged as an unlikely champion of globalization as he warned that there would be no winners in a trade war should Donald Trump choose to act on his election promise to erect trade barriers and slap 45% tariff on goods imported from China. Nobel laureate Paul Krugman is not very hopeful that the new US president would heed to such reason. Krugman thinks that Trump would use the provision in US trade laws to enhance protectionism without legislative action, which in Krugman’s opinion has the potential of unleashing a global trade war. Such a move has the potential of completely changing the current structure of production and value chains across the globe, and would cause considerable chaos and pain until a new arrangement evolves.
Read here: The China Shock and the Trump Shock
Economics Digest runs weekly, and features interesting reads from the world of economics