Tag Archives: innovation

05.16.2013 | Demand and Supply: Should Congress Unbundle Cable?

If I pay $100 for a 50 channel cable package, then choosing the 25 channels I really watch should cost me $25. Yes?

I suspect Senator John McCain agrees. But it might not work out that way if his legislative unbundling proposal is passed by Congress.

Currently, consumers buy cable packages that provide access to groups of programs. A typical bundle, this Comcast offer includes “over 160 channels…40 commercial free music channels …17,000 on demand choices” for “as low as” $49.99 for 6 months. In 2005, the average household watched only 15 of the 96 channels in its subscription and paid close to $600 annually.

So, would à la carte be better?

Demand:

According to academic studies, no one is sure if unbundling will save us money. One Temple University researcher unbundled cable packages into “7 mini-tiers by channel genre” and concluded that we would save 35 cents per household per month. On the other hand, one of 2 FCC studies concluded that unbundling would be beneficial but the other did not.

Trying to assess the impact on the consumer, economists have created alternative package scenarios. They have cited consumer surplus, transaction costs, “option value” and monopoly power. They list the other bundles we buy like season tickets and newspapers (a bundle of articles). They cite huge cable price increases and lack of choice.

Supply:

On the supply side, analysts refer to the high fixed costs that relate to the expense of wiring and establishing a network and then to the low marginal cost of expanding and implementing it. They remind us of programming costs and licensing fees. Unbundling could upset the revenue stream that facilitates the current industry structure. It could mean the demise of less popular channels. Or, it could encourage more productivity and new industry approaches.

So, with all of these demand and supply variables and more, how to decide whether unbundling makes sense? Maybe we don’t have to decide. One journalist suggests waiting for internet competition to upset the current market model.

Sources and Resources: While this WSJ article summarized the unbundling issues and alternatives most clearly, this academic paper has 51 pages of everything you ever wanted to know about cable TV and bundling. In addition, for lots more reading and the source of more of my facts, I suggest this New Yorker column, this Slate article, this Atlantic discussion and here is the McCain proposal. After reading it all, I can only say that the countless variables are all in flux because of technological innovation.

From “Unbundling Cable Television:An Empirical Investigation” by Dmitri Byzalov

Posted by: adminEcon
Tags: demand and supply, fixed cost, innovation, monopoly, unbundling cable TV packages, unintended consequences
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03.15.2013 | Creative Destruction: Purell’s Story

Blowing out candles on birthday cakes has been banned in Australian childcare centers. The reason is the germs. Also, kids are required to wash their hands before going in the sandbox. Really. The rule comes from Australia’s Health Minister.

In the US, I guess that we do have a similar germaphobe state of mind. One reason might be the alcohol-based hand cleaner, Purell.

Made by Gojo Industries, Purell was invented 1988. At first, only auto mechanics used it to remove stubborn grease stains. Next, Wegman’s supermarket chain recognized its potential when they offered Purell to employees. Gojo hit the jackpot, though, when it targeted health care workers.

As an innovation, Purell’s trajectory is typical. At first, its use was limited but then it became more popular. Recommended by hospitals, adopted by the military with a bottle designed to survive a parachute jump, place by place, Purell infiltrated our culture. And now, in wall dispensers and in our pockets, it is everywhere.

Explaining “creative destruction,” economist Joseph Schumpeter (1883-1950) said that economic growth depends on the pain of old industries dying and new ones taking their place. For Purell, we could site a ripple that initially affected soap purveyors like Proctor & Gamble. But then, the germaphobe mindset moves us to all activities and objects that might increase contact with germs, including birthday candles and cakes.

Far beyond economics, Purell is all about creative destruction.

Sources and Resources: My interest in Purell started with a New Yorker article from David Owen and continued with these Daily Mail details about the Australian birthday cake directive.

Posted by: adminEcon
Tags: creative destruction, innovation, Joseph Schumpeter, Purell
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03.07.2013 | Creative Thinking: Oreos and Wobbly Plates

Today, some thoughts about creativity.

First, the Oreo Separator:

Thinking about how something seemingly frivolous can be wonderfully productive took me to Nobel Prize winning physicist Richard Feynman. His wobbly plate story (when he taught at Cornell) is marvelous. He describes it in this excerpt from his book, Surely You’re Joking, Mr. Feynman!

“…I was in the cafeteria and some guy, fooling around, throws a plate in the air. As the plate went up in the air I saw it wobble, and I noticed the red medallion of Cornell on the plate going around. It was pretty obvious to me that the medallion went around faster than the wobbling.

I had nothing to do, so I start to figure out the motion of the rotating plate. I discover that when the angle is very slight, the medallion rotates twice as fast as the wobble rate–two to one. It came out of a complicated equation! …

I went on to work out equations of wobbles. Then I thought about how electron orbits start to move in relativity. Then there’s the Dirac Equation in electrodynamics. And then quantum electrodynamics. And before I knew it…I was “playing”…

I still remember going to Hans Bethe and saying, ‘Hey, Hans! I noticed something interesting. Here the plate goes around so, and the reason it’s two to one is…’ and I show him the accelerations. He says, ‘Feynman, that’s pretty interesting, but what’s the importance of it? Why are you doing it? ’Hah!’ I say. ‘There’s no importance whatsoever…’

…There was no importance to what I was doing, but ultimately there was. The diagrams and the whole business that I got the Nobel Prize for came from that piddling around with the wobbling plate.”

And finally, I wonder how, in school and beyond, we can encourage the creative thinking that delights the people who do it and also fuels our economy?

Sources and Resources: You can see the original Oreo separator video here. Very readable and full of great stories that Dr. Feynman tells about his life, Surely You’re Joking, Mr. Feynman! is a great book. The excerpt from the Feynman book, published by W.W. Norton, is at Amazon, pp. 173-174.

Posted by: adminEcon
Tags: creative thinking, economic growth, innovation, Richard Feynman
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02.08.2013 | Innovation: Where Do Inventors Live?

Hearing about the producer of the high-speed hand dryer, I thought, “Tweaker.” Describing Steve Jobs, Malcolm Gladwell called him a “tweaker.” Like the 19th century inventor who made the spinning wheel spin more smoothly, tweakers make an existing device better.

While we have had hand dryers for a long time, it took a “tweaker” to improve it. Traditional hand dryers take 35 to 40 seconds to dry your hands–if you are patient enough. For 3 1/2 years, Denis Gagnon tried to create a better way. The result was a high-speed hand dryer that did the job in 12 seconds.

The development of the high speed hand dryer was primarily a Massachusetts project. According to a Brookings paper on innovation, Massachusetts is a big center for patents. In an interactive version of the map that follows, Brookings lets you scroll across the dots to see the firms that have the most patents in each area and the number of patents per worker.

From an historical perspective, you can see we might be experiencing a more inventive era.

Sources and Resources: Like all of Malcolm Gladwell’s articles in the New Yorker, this “tweaking” discussion is wonderful. Also interesting, this NPR report provides more details about the origins of the fast hand dryer while here is the link to the overview of the entire Brookings paper on metro patents. Finally, you might want to look at Tyler Cowen’s The Great Stagnation (a $3.99 Kindle price) to see why he believes invention is currently more of a challenge and at econlife’s look at the bacterial merits of fast hand drying.

Note: This entry has been minimally edited since it appeared.

Posted by: adminEcon
Tags: economic growth, high speed hand dryer, innovation, patents, technology
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12.14.2012 | Happy Birthday Texting!

Sometimes, you never know…

At first, it was just a “Merry Christmas” message sent from a computer terminal to a cell phone. The year was 1992, the firm was Vodafone, and the goal was just a better way for secretaries to page their managers. The managers, though, could not reply. And anyhow, they figured the service was limited because it was too much of a hassle to type a message.

Think of what had to happen between then and now.

Develop a 2-way system so the recipient could reply.
Enable texting among different networks.
Figure out what to charge and how to charge.
Redesign cell phones.
Develop “text-speak.”

And the rest is history. In the US, in 1995, the average user sent 0.4 texts a month; by 2000 it was 35 a month; now Pew Internet says the “median teen text user” sends 60 messages a day. And texting has become a $150 billion business.

Below, CNN interviews Neil Papworth, who was 22 when he sent the “Merry Christmas” text 20 years ago.

Our bottom line? While sometimes you never know where innovation will go, Joseph Schumpeter (1883-1950) would remind us that it leads to creative destruction.

A final fact: It is interesting to ponder the words that accompany innovation. For the telegraph (1844), Samuel Morse tapped: “What hath God wrought?” With his telephone, Alexander Graham Bell said (1876), “Mr. Watson, come here–I want to see you.” And, Neil Papworth, the gentleman who sent the first text message said that most engineers are happy just to say, “Testing, testing testing.”

Sources and Resources: During the The Economist’s Babbage weekly podcast, I first heard about the texting birthday and then read a bit more about it here, here and here. And here, you can read more of the Pew Internet study in “Teens and Smartphones.”

Posted by: adminEcon
Tags: communication, creative destruction, happy birthday texting, innovation, Internet, Joseph Schumpeter, Neil Papworth, pagers, Richard Jarvis, short message sending, smart phones, SMS, teens, texting, Vodafone
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