There are few things that have a bigger influence in global markets than swings in oil prices. However, the ripple effects these swings have are hardly ever clear cut. In order to understand how swings in oil prices can influence global markets, we must first understand how these prices can increase or decrease.

Oil is a commodity that tends to fluctuate throughout time. One of the largest influencers of these fluctuations is the Organization of Petroleum Exporting (OPEC). The OPEC is an organization that includes 13 countries; Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. According to their website, as of 2016, “81.5% of the world’s proven crude oil reserves are located in OPEC Member Countries, with the bulk of OPEC oil reserves in the Middle East, amounting to 65.5% of the OPEC total” (http://www.opec.org/opec_web/en/data_graphs/330.htm). They have production levels that meet global demand, and are able to control prices by increasing or decreasing production.

Just like the stock market, the laws of supply and demand play a crucial role for commodities as well. If supply of oil were to pass demand, the price of the oil must decrease, and if demand were to pass supply, prices will increase. For example, if there is lower demand for oil in Europe and China, but there is continuous supply of oil from the OPEC, the price of oil will fall due to the surplus of oil supply. Although supply and demand do affect oil prices, the future of oil and reserves are what actually sets the price. Future contracts allow purchasers of oil to buy at a fixed price in the future on a specific date. Other influencers of oil prices include natural disasters, such as hurricanes or earthquakes, production costs, and political instability.

Although weaker demand is what can drive prices lower, the growth rate in China, which is the world’s largest net importer of oil, has caused significant changes to the price of oil. This is due to the slowdown of growth in China. Also, the OPEC has promised to reduce its production of oil, which can drive up the demand. However, with competitors entering the market, the OPEC has kept its production levels up to compete in the market and hold market share.

For many industries in the market, oil prices are really important to pay attention to. Fluctuations in prices can have a large influence on different sectors of the economy. One of the main sectors that is highly influenced by oil prices is the airline industry.

Every traveler can agree that the cost to fly from one place to another has become a crucial factor in making the decision to travel. Like most industries, the airline industry is constantly itching to find new streams of revenue. Airfare fees used to cut it, but now surcharges have been placed on almost every bit of customer service offered by the airline company. This includes seat selection, checked bags, meals, and sometimes carry-on bags, and they are not cheap. These surcharges first began as something to depend on when fuel prices increased, as well as increasing ticket costs.

Overall, crude oil prices have significantly dropped as a result of a surplus of supply. For the airline industry, a decrease of oil prices is great news. This means that they will have lower costs on fuel, which is one of their major costs, and will potentially lead to an increase in profits. The decrease in oil prices have caused airline companies to restructure their fleets, buy back stocks to show better earnings, and also look into expanding their routes in areas that seemed less feasible. This has also benefited travelers, due to the decrease in airfare costs.

Crude prices had recovered in the first quarter of 2017. This resulted in most airline fuel costs to rise. According to Ally Schmidt, “Delta Air Lines’ fuel costs rose 26.4% YoY to $1.6 billion. American Airlines’ fuel cost rose 37.8% YoY to $1.7 billion, and United Continental’s fuel costs rose 28.1% YoY to $1.6 billion. Alaska Air’s fuel cost rose 103% YoY to $339 million, including the impact of its Virgin America merger. Southwest’s fuel cost rose 13.6% to $959 million. JetBlue’s fuel cost rose 50% to $323 million. Spirit Airlines’ fuel expense rose 62.2% YoY to $139 million” (http://marketrealist.com/2017/08/analyzing-crude-oils-impact-on-airlines-fuel-costs/).

With the news of the OPEC and a few other non-OPEC nations slowing oil production rates until March of 2018, the oil prices rose to about $51.50 per barrel (http://marketrealist.com/2017/06/how-crude-oil-prices-impact-airlines-fuel-costs/). However, the impact of Hurricane Harvey had caused oil prices to fall to $47 per barrel. The capacity Texas has of oil is about 5.6 million barrels per day, and Louisiana has about 3.3 million barrels per day. The loss faced by both of these states resulted in a decrease in crude prices.

We know an increase in crude oil prices negatively impacts the industry’s largest cost. However, a decrease in crude oil prices can also cause problems to the airline industry. Lowering the oil costs can enhance profits, but also lowers airfares. This increases demand for traveling, which forces airline companies to find ways to increase capacity. Adding too many routes or dramatically increasing their fleet can cause airline companies to hurt their potential profits when oil prices bounce back. Therefore, it is very important for them to make every move a smart one. Major airline companies have recently done a good job of finding the right balance between adding capacity and still keeping demand steady.

Another industry that is impacted by the fluctuations of oil prices is the auto industry. Automobiles and petroleum are considered to be complimentary goods, which are goods that are associated with one another. Gasoline is a petroleum-based product; therefore, price fluctuations in crude oil can directly impact the price. A fall in oil prices is great for automotive companies. This means that vehicle sales will rise, as gas prices are cheaper, and more people have leftover income to spend. The extra income that people have could be used to lease or purchase a new car. As the cost to drive becomes cheaper overall, car ownership becomes more attractive to the population.

However, the impact oil prices have on the auto industry does depend on the market and the nation. For example, people who live in high fuel-tax areas may experience an overall lower percent change in the price. Therefore, it will not appear as significant as it will to someone who lives in a lower fuel-tax area. This can change the perspective one has towards purchasing a vehicle during a time where oil prices have decreased.

Some argue that the constant volatility of oil prices causes uncertainty about if and when the oil prices will increase again in the future. Therefore, this can impact the decision-making process of an individual wanting to finance or purchase a car. This perspective suggests that the future expectations of oil prices are what reflect car sales, rather than the actual price. However, most industry experts are directly correlating an increase in sales with the recent low gas prices.

The increase of automobile sales due to lower gas prices has had a larger impact on the gas-guzzling vehicles than the fuel-efficient ones. These vehicles tend to be more expensive in general, allowing automobile companies to generate more revenue. Also, profit margins on smaller vehicles are usually less than the larger vehicles, and gas-guzzling vehicles are generally on the larger side, including trucks and SUVs.

Fluctuations in oil prices can affect many companies in different sectors. Low prices can benefit industries that rely on oil as a key input, but other industries may hurt. Upstream oil producers are the ones that take the largest hit when their costs to produce the oil passes the market price, and they have to operate at a loss. However, downstream companies can hurt as well. These include industrial producers and other companies that build drilling operations, as they support the energy sector. Also, investors that hold bonds from oil producing firms also take a hit. As mentioned, this is also true for the exact opposite; an increase in oil prices. High oil prices can significantly hurt industries, such as the airline and auto industry. However, upstream oil producers and industrial companies that support the energy sector can benefit from an increase in oil prices.

It is difficult to accurately predict what the future holds for oil prices. The U.S. Energy Information Administration predicts that crude oil prices will average $52 per barrel in 2018. The reports show that volatility will not be as bad as it was in 2016. Commodity traders are able to predict the price of oil due to their future contracts. Their predictions state that price could be anywhere from $39 per barrel to $63 per barrel by December of 2017 (https://www.eia.gov/outlooks/steo/report/global_oil.cfm). It is important to remember that any perceived shortages, such as a hurricane, can cause these traders to panic and prices to increase. However, prices tend to moderate in the long run, while heavily impacting industries in the short run.

 

Sources:

https://www.eia.gov/outlooks/steo/report/global_oil.cfm

http://www.opec.org/opec_web/en/data_graphs/330.htm

http://marketrealist.com/2017/08/analyzing-crude-oils-impact-on-airlines-fuel-costs/

http://marketrealist.com/2017/06/how-crude-oil-prices-impact-airlines-fuel-costs/

Oil markets are positioned for yet another wild ride; with academic and Wall Street analysts predicting price increases of anywhere ranging from $40 to $70 per barrel by the end of the year, oil is looking far more handsome to investors. Over the last two and a half years, the industry experienced its deepest downturn since the 1990s. As the old saying goes, “history always repeats itself.” When using the past as a guide, after every oil bust comes a significant recovery, if not a market boom. With external factors like increased electronic car production and the Organization of the Petroleum Exporting Countries, known as OPEC, fast at work, one question remains: just how long will this upswing last?

According to macrotrends, as of October 10^th, the price of West Texas Intermediate (WTI) crude oil was $49.17 per barrel. “It looks as though the market started to get convinced that the rebalancing is actually happening,” Tamas Varga, an analyst at PVM Oil Associates Ltd. Said in a note during late September of this year.

Even after oil prices recovered from below $30 per barrel in early 2016 to $50 per barrel by the end of that year, The New York Times reported that Executives believe it will be many years before oil returns to a comfortable and prosperous $90 or $100 per barrel, which was essentially the norm for the industry until the price greatly collapsed in late 2014. However, analysts still remain hopeful that oil prices will sit above $60 per barrel by the end of this year.

Following a drumbeat of bullish data in September, which included the International Energy Agency’s upward revision to its demand outlook, crude oil prices were lifted, returning the U.S. to bull-market territory. The Wall Street Journal reported that this serves as the sixth bull market for the crude industry in four years and the first since February of this year.

Investors have gained new confidence that OPEC will continue to cut production and its efforts will help to bring oil’s supply and demand into balance, thus increasing prices. Other factors, like Iraqi Kurdistan’s independence referendum, have played an influential role in boosting prices. After Turkish President, Recep Tayyip Erogan, made a camouflaged threat to close the pipeline which allows for Kurdish oil to reach the global market, crude prices perked up in response.  Political and economic upheaval in major oil-producing countries like Venezuela could cause a major price spike as well.

In the wake of Hurricane Harvey, U.S. oil rebounded as U.S. refineries came back online. Due to the storm’s immense power and widespread devastation, U.S. oil supply became more limited, causing an increase in the prices per barrel.

Global demand for oil has also been strong in recent months. In early September of this year, the International Energy Agency (IEA) raised its prediction for demand growth throughout 2017 and expects an increase of at least 1.6 million barrels each day. Additionally, Forbes reported that the “Energy Information Administration showed that motor gasoline product supplies rose 0.6 percent on a year on year basis.” With the IEA confirming rising growth outside the U.S. and the EIA confirming the rise in U.S. demand for petroleum product, “oil markets will move back into contango, and there is really nothing stopping a move in U.S. crude to $60/barrel.”

Despite outspoken investor confidence in a continued upswing in crude oil prices, some more speculative investors and hedge funds remain bearish when placing bets on U.S. crude oil. Donald Morton, a Senior Vice President on the energy trading desk at the Connecticut-based Investment Bank Herbert J. Sims & Co., told the Wall Street Journal, “The short sellers haven’t capitulated yet. Those bears who are entrenched remain entrenched – they’re not convinced this is over.”

In early 2017, data from the Commodity Futures Trading Commission showed the bullish bets outnumber bearish ones by more than 11 to one, but according to more recent data, that number has shifted to less than three to one.

So, who benefits from this resurgence in oil prices? Oil companies, their employees and shareholders all walk away as winners when oil and gasoline prices rise. U.S. producers are likely to lock in higher prices for future outputs to maximize their profit. Michael Tran, the director of energy strategy at RBC Capital Markets, regarded this producer mentality as something that has previously capped rallies and worked against OPEC’s pricing efforts.

Producing states, including Alaska, Louisiana, North Dakota, Oklahoma and Texas benefit from residual employment and tax revenue increases. The higher crude prices equate to increased activity in the oil fields, which aids local businesses including construction firms that build housing, truck dealerships, and mom-and-pop services companies.

Nigeria, Russia, Saudi Arabia and Venezuela are all major crude oil producing countries that have been pressed financially in recent years.  For the Saudis, higher oil prices hold an additional benefit as its state oil company, Saudi Aramco, becomes more valuable for the initial public offering (IPO) planned to roll out later this year.

Lastly, there is a potential benefit for the environment. With increasing oil and gasoline prices, consumers are encouraged to buy smaller, more fuel-efficient vehicles and limit driving. While this is a good sign for mother nature, consumers of gasoline, heating oil and diesel fuel walk away from the oil pricing increase as losers. Additionally, retail outlets, hotels, and restaurants can take a hit when consumers have less disposable income in response to increased pricing.

With OPEC members producing nearly 40 percent of the global oil supply, the group, when united, serves as a tremendous force in dictating oil prices. In response to their recent efforts, current oil and gasoline prices are more or less in balance, which The New York Times suggests positive economic news for all parties affected by the industry.

As excitement continues to circulate around the direction of oil prices, it seems as though no one has bothered to consider impending potential threats to the crude oil industry.

“It’s going to be huge,” overjoyed oil industry experts exclaimed as Donald J. Trump was elected as the U.S.’ 45^th President. Trump is outspoken about his support of industry efforts to build more pipelines, including the Keystone XL, a pipeline that would open up more federal lands and Deepwater prospects for drilling, and successfully deliver Canadian heavy oil to refineries located near the Gulf of Mexico. He has also stated he would like to lower regulatory burdens on the industry, which was made apparent through his lack of sympathy for the international Paris climate accord, which set out to lower global dependence on fossil fuels.

If enacted, all the aforementioned policies would increase natural gas and oil supplies on domestic and international markets, which in theory sounds great, right? Well, this would actually lower gas prices, which would hush the joyous industry expert’s tune.

Trump’s presidency isn’t the only threat facing the oil industry. Automakers have been pushing to produce more electronic cars.

10 years ago, Apple Inc. released a surge of innovation (does the name iPhone ring a bell?) that completely capsized the mobile phone industry. With some assistance from ride-hailing services like Uber and Lyft, and new self-driving technology, Bloomberg Technology stated that Electric cars could be on the cusp of pulling the same fast one on “Big Oil.”

David Eyton, the head of technology at the London-based oil giant BP Plc, stated in an interview, “Electric cars on their own may not add up to much, but when you add in car sharing (and) ride pooling, the numbers can get significantly greater.” Fewer people driving cars indicates less demand for oil. If the already diminishing vehicle numbers on the road are replaced by electronic vehicles, the demand for oil will greatly reduce, causing a huge drop in price and supply will likely continue to increase or stay the same.

Tim Harford, the economist behind a BBC radio series and book on historic innovations that disrupted the economy pointed out that instead of electric motors gradually replacing the current norm of internal combustion engines within the model, there’s likely going to be “some degree of systemic change,” adding, “(improvements in technology) are a lot more complicated (than perceived).”

Moral of the story? Yes, crude oil prices are rising at a promising rate; however, one must always remember that all good things do come to an end.

 

Works Cited

Collins, Jim. “Rising Demand Will Continue To Drive The Rally In Crude Oil Prices.” Forbes, Forbes Magazine, 27 Sept. 2017, www.forbes.com/sites/jimcollins/2017/09/27/rising-demand-will-continue-to-drive-the-rally-in-crude-oil-prices/#2f2a309c2749.

“Commodities: Latest Crude Oil Price & Chart.” NASDAQ.com, www.nasdaq.com/markets/crude-oil.aspx.

Krauss, Clifford. “Oil Prices: What to Make of the Volatility.” The New York Times, The New York Times, 15 May 2017, www.nytimes.com/interactive/2017/business/energy-environment/oil-prices.html?_r=0.

Saefong, Myra P., and Mark DeCambre. “Oil Prices Settle at a More than 1-Week High.” MarketWatch, MarketWatch, 10 Oct. 2017, www.marketwatch.com/story/oil-aims-for-first-2-session-gain-since-late-september-as-saudis-cut-crude-exports-2017-10-10.

Salvaterra, Neanda, and Alison Sider. “Oil Prices Mixed Ahead of Crude Market Data.” The Wall Street Journal, Dow Jones & Company, 9 Oct. 2017, www.wsj.com/articles/oil-prices-yo-yo-ahead-of-crude-market-data-1507546791.

Shankleman, Jess, and Hayley Warren. “How Electric Cars Can Create the Biggest Disruption Since the IPhone.” Bloomberg.com, Bloomberg, 21 Sept. 2017, www.bloomberg.com/news/articles/2017-09-21/how-electric-cars-can-create-the-biggest-disruption-since-iphone?utm_medium=email&utm_source=newsletter&utm_term=170925&utm_campaign=ritholtz.

 

It’s an idea that makes sense for many reasons, mostly notably because it doesn’t toy with our environment quite like gas does. But, as with most change that occurs in this world, the full-on switch to electric vehicles (EVs) continues to take some time.

Many believe that electric vehicles will overtake gas-powered ones in a matter of years. When will this be the case? In order to answer this question, you need to have a basic understanding of what owning and selling an EV requires right now. And this knowledge will give you a solid perspective of the pros and cons of the EV’s existence.

According to PBS.org, Robert Anderson, a Scottish inventor, was the first person recorded to make headway into creating an electric-powered vehicle from 1832-1839. In 1891, a chemist from Iowa named William Morrison built the first electrical automobile in the United States. So the notion of electric vehicles was born far before the emergence of modern technology we’ve come to know.

Still, a column from Business Insider noted that about 34 million vehicles were sold over the past two years in the United States, and mostly all of them were fueled by gas. One of the biggest reasons why people see no need to shift from gas-powered to electric cars is due to the time length of charging a battery.

It takes a short matter of minutes to refuel a gas-powered engine, while most electric vehicles need to be powered overnight or take roughly an hour at a commercial station, via The New York Times. This reality contributes to an anxiety that if the car’s battery runs out, and you don’t have a charging station nearby, you can no longer travel.

The way to get rid of that fear is to think of EVs like ChargePoint chief executive Pasquale Romano.

“Electric vehicles are more like horses than gasoline cars,” Romano said, also via that NY Times piece. “You refuel them when you’re doing something else.”

The charging options for your electric vehicle are broken down into two levels. Level 1 charging means that it plugs into a typical house outlet. Using the Nissan Leaf as our primary example, it would take 22 hours for a full charge. But driving 40 miles per day, which is typical of the average American, would allow for around nine hours to completely recharge your battery for the next day, per PlugInAmerican.org.

The fact that electric cars are very functional within shorter distances enables them to be used by modern car-sharing technologies like Uber and Zipcar.

“Electric cars on their own may not add up to much,” David Eyton, head of technology at London-based oil giant BP Plc, said in an interview. “But when you add in car sharing, ride pooling, the numbers can get significantly greater.”

Since for many people time is money, you may want to explore other charging methods if a trip were longer, perhaps around 200 miles. The DC Fast Charger costs up about $100,000 and adds 40 miles per every 10 minutes — a dramatically reduced time from Level 1 charging. CleanTechnica.com notes the the cost of a Level 2 charging station ranges from $500-$1,000 — a manageable price— but is less powerful than the DC Fast Charger.

As one could gage, based on the lack of quick chargeable modes, current electric vehicles don’t have the capacity to make long road trips possible. Driving from Los Angeles to the lower edge of Colorado is about an 800-mile journey, and an electric vehicle would make that voyage difficult. This excursion is hard due to, not only the time it takes for charging the battery, but also the amount of charging stations available.

Charging stations aren’t readily available to everyone in the United States, as building this infrastructure is one of the challenges electric vehicle producers face. The U.S. Department of Energy recorded that there are 16,838 electric stations with 44,753 charging outlets in the country.  Looking at the map they provide as to where these stations are located, it’s clear and understandable that the east coast and west coasts of the United States are more densely populated than areas like Montana, the Dakotas, Nebraska, Nevada and Mexico. When these regions are rife with charging centers, you’d expect the demand for EVs would also be higher.

When one looks at how the demand of a good or product can increase, price/cost and quality become key factors in predicting demand. Quality seems to be directly correlated to overall cost. Typically, someone will pay less for a good or service they deem of lesser quality. The same applies for the reverse logic: someone will pay more for a good or service they deem of higher quality.

This idea brings into play the possibility that electric cars will, at some point in time, be considered more logical to buy than gas-driven cars, since EVs will be of similar or better quality than their counterparts and also cost less. A report from the Rocky Mountain Institute specified that there are 15 EV models under $30,000 with multiple models that have batteries lasting up to 200 miles. Cars with internal combustion engines can seem a bit more logical with these current numbers, especially if you’re traveling long distances.

But it’s worthy to say electric cars are on their way to becoming cheaper. A new report from Cowen & Co. details that electric cars will be cheaper than their gas partners by the early- to mid-2020s, due to falling battery prices and costs that traditional car makers will deal with to ensure their vehicles abide by fuel-efficiency standards. President Barack Obama enacted these standards in 2012 to strengthen the pull toward the cleaner energy of electric cars, and at the time, dissenters existed.

“The president tells voters that his regulations will save them thousands of dollars at the pump,” Republican presidential candidate Mitt Romney said in 2012, “but always forgets to mention that the savings will be wiped out by having to pay thousands of dollars more upfront for unproven technology that they may not even want.”

When the cheapness and functionality is clearly accelerating past gas-fueled cars, it will then be up to producers of EVs to make sure supply is on the right level to meet increased demand.

Right now, even though electric vehicles make up for 1 percent of total car sales, the sales of EVs have been growing. Forbes stated that EV sales increased by 36 percent in 2016 from 2015, and have went up at a yearly growth rate of 32 percent over the recent five years.

This rate is primed to grow more and more, as the world becomes more comfortable with phasing out vehicles with internal combustion engines. CNN listed the countries that were planning to completely rid their economies of gas-powered vehicles. France and Britain announced that they would ban sales of gasoline and diesel cars by 2040. India is aiming to get rid of them by 2030. And Norway wants new passenger cars and vans sold in 2025 to all be electric.

China is one of the leading pioneers in the development of vehicles using clean energy. By 2025, states The New York Times, Beijing hopes for one out of every five cars sold to utilize alternative fuel.

The issue facing EV manufacturers in the U.S. now, according to auto sales and information site Edmunds, is that once government subsidies for buyers run out, the market for EVs could crash. This line of thinking is partially based off how Georgia accounted for 17 percent of U.S. EV sales before it dropped to 2 percent after its $5,000 tax credit was eliminated. But states like California, spending $449 million over seven years on doling out these payments, are thinking of spending even more money, $3 billion according to the Los Angeles Times. This move could raise state deductions for EVs from around $2,500 to about $10,000, making a Chevrolet Bolt EV around the same price as a gas-fueled Honda Civic.

The incentives don’t end there, though, as energy company Ovo has devised a way to offset some of the electric cost applied when charging your vehicle at home.

“It provides an economic benefit for electric vehicle owners,” Ovo CEO Stephen Fitzpatrick said. “So they get more use of out of the vehicle that they’ve got parked in the driveway.

When rates for electricity are low during hours of overall less electricity use, the charger by Ovo will fill up the car’s battery. When the rates are higher, the battery would start charging someone’s home or sell the energy back to the grid. One could sell energy back to the grid for up to 25 cents at peak time, while electricity costs about 5 cents a kilowatt-hour during “off-peak” hours.

“In other words, the value of the electricity that’s stored in the battery goes up by a factor of five,” Fitzpatrick said.

When was the last time you used a search engine other than Google? When was the last time you bought a book online from somewhere other than Amazon?

You probably can’t think of a time because Amazon and Google essentially have monopolies over their respective corners of the internet. While we might notice how are choice of airline or cable company is extremely limited, we recognize less the monopolistic qualities of these internet giants.

Just because Google and Amazon don’t look like what we picture a monopoly to be it doesn’t mean they don’t have monopoly power.

A Brief History of Antitrust in the United States

In order to look at whether these tech giants have monopoly power we need to look historically at the laws designed to prevent this kind of power.

The United States Congress passed the Sherman Antitrust Act in 1980 in an effort to prevent companies from having monopolies that stifle competition, harm consumers or raise prices. The Sherman Act along with the subsequent Federal Trade Commission Act and Clayton Act are the core of American antitrust law.

These antitrust regulations were enforced fairly aggressively by the Justice Department from the 1930s until the 1960s. Then came Robert Bork, the Yale Law professor and supreme court nominee. Bork argued that the main concern of regulator should be solely if prices for the consumer were dropping. His ideas became the policy of the US Department of Justice when he became solicitor general under Richard Nixon and they have remained the mindset of the government until today. Bork’s ideas on antitrust are at the center of American antirust regulation enforcement. His influence is the reason why there has been a decline in antitrust regulation enforcement over the last 50 years.

In Move Fast and Break Things Jonathan Taplin argues that Amazon, Google and Facebook would all be prosecuted under antitrust laws if it weren’t for Bork.

Are Google and Amazon Monopolies?   

When you think of a monopoly Google or Amazon are probably not what you picture. You might think of the oil and steel barons of the late 19^th and early 20^th century or the telecomm monopoly AT&T once had. Or you might even think of the board game Monopoly.

Unlike the traditional monopolies, Google and Amazon lack a tangible product. They don’t have physical control over all production of steel or ownership of all phone lines. With Google or Amazon there isn’t anyone and anything standing in the way of someone creating a new search engine or e-book market. Their businesses lie within cyberspace they aren’t necessarily tangible. In a way, they have a monopoly of eyes. They have majority control over the platforms people use to consumer information of buy things online. They have a monopoly of users.

Legally, The Supreme Court of the United States has defined monopoly power as “the power to control prices or exclude competition,” this definition also includes an assumption that the company has a majority market share. Using this legal definition as a guide let’s see if Amazon and Google have monopoly power.

Amazon and Alphabet, Google’s parent company, have many different aspects of their businesses. Therefore, we will only look at one part of each of company. For Google, we will look at search and search for advertising. For Amazon, we will be analyzing the e-book market.

86% of all e-book sales in the United States occurred on Amazon in 2016, according to Authors Earnings’ February 2017 report. Amazon clearly has majority market power. They have the ability to control prices or even stop all books from a publisher from being sold on Amazon. Since they are the largest marketplace for e-books it would be detrimental for a publisher if their books were not sold on Amazon.

In 2014, Amazon and Hachette, a publisher, were in a dispute over pricing Amazon stopped all presales of Hachette books and caused shipping delays. In this case Amazon was exhibiting more monopsony qualities, when one buyer controls a market, because through their control of the distribution of books they are the largest buyer of books. Since Amazon is the largest book, online and print, seller Hachette was forced to bend to Amazon’s will. Hachette was ultimately able to win a little and in the resulting deal with Amazon was able to gain more control over how their e-books are priced on Amazon. As a whole because Amazon occupies such a dominant share of the e-book market its sheer dominance allows it to set prices.

Google, like Amazon with their sector, holds a large majority of the search market. According to Stats Counter, in September 2017 Google had an 85% market share of internet search in the United States. Google overwhelming dominates the search market This means they are also able to have market power over search advertising. Alphabet and Facebook essentially have a duopoly over all online advertisings with more the 60% of all internet ad revenue, according to an analysis by Reuters of their quarterly reports.

Google has such control over the search market that it excludes all other competitors. Even if some other search engine all of a sudden became a better search engine they wouldn’t be able to succeed because Google has control over the search engine market.

Further proof of the market consolidation of the search market is the Hergindhal-Hirschman Index (HHI) score, which measures the concentration in a particular market. Antirust agencies consider a market with a score of 2,500 to be highly concentrated. The search market has a score of 7,402, off the charts.

While Google and Amazon may not look like what we picture a monopoly to be the exemplify all the qualities of monopoly power.

Are These Monopolies Good?

Google and Amazon essentially have monopoly power over their respective corners of the internet market, but is this power a bad thing?

For the consumer Amazon’s immense control over the e-book market looks like a good thing because it produces lower prices. Bork would argue that Amazon’s monopoly power is a good thing because it lowers prices for consumers. However, the Bork line of thought fails to consider is possible effects of a monopoly power beyond the price consumers pay. As we saw with the Amazon-Hatchett dispute of 2014, Amazon has the ability to undermine the supply chain of e-books. There might be positive effects for the consumer, but Amazon’s power can harm publishers and authors.

Monopoly power can also lead to a stagnation in innovation. If a company does not have another company with the potential to compete with them there is no motivation to innovate. If you have such a large market share there is no incentive or need to innovate to get new users or to maintain your exciting user base.

For example, even if Bing had a substantially better product it would still barley make a dent in Google’s user base. It wouldn’t lead to Google to innovate as well, because their market power is so large and strong. Without competition, users lose out on getting better products and futures.

An example of the positive results of having a competition can be seen with Facebook and Snapchat. Facebook is the most successful and popular social media platform, but Snapchat has had a growing user base and also the love of investors. Facebook tried to buy Snapchat for $3 Billion, but Snapchat turned them down. By not consolidating Facebook and its subsidiaries, including Instagram, became a competitor of Snapchat. Facebook felt like it had to compete. This has led to each company having to innovate.

Facebook chose to basically copy Snapchat’s features as their method of innovation to try and protect their existing user base. Meanwhile, Snapchat is trying to develop new features to draw more users in. An example of this is Snapchat and Instagram stories. Instagram introducing stories was clearly an attempt to copy Snapchat stories, but in order differentiate themselves from Snapchat Instagram had to try and create a better version of stories. While Instagram stories was more of a cloning than an innovation it was still Instagram having to develop new features to be competitive. In the end though, it seems like Facebook’s cloning of Snapchat features has just allowed them to gain more market power. Currently Snapchat has the largest share of new users, but their share of new users is shrinking and Instagram’s is growing. Overall, this competition between Facebook and Snapchat benefits the consumer.

How to Deal with These Monopolies

Those who align with Robert Bork would argue that there is no need to break up Amazon or Google, because the prices for consumers are not being raised. In the case of Google there was never even a price paid by consumer.

But as we explored there are downsides to these monopolies, so what should we do about them? Are our antitrust laws from over a century ago built to regulate companies with products the bills’ author could have never imagined?

Jonathan Taplin has purposed a series of possible ways to break up or regulate digital monopolies like Amazon and Google. In a New York Times opinion piece, he laid out three possible regulatory options: option one is to block the major digital players from acquiring each other. Another possibility is to treat them like public utilities—which would require them to license out their patents. Or a third option would be to remove the “safe harbor” clause from the 1998 Digital Millennium Copyright Act, which according to Taplin allows companies “to free ride on the content produced by others.”

Actually, breaking portions of these new monopolies would require the Justice Department to return to its pre-Bork hardline position on antitrust. So maybe the best way to deal with these tech monopolies is to institute some creative regulations to curtail some of the more negative effects of their monopoly power.

Sources:

https://www.nytimes.com/2014/11/14/technology/amazon-hachette-ebook-dispute.html

http://fortune.com/2017/07/28/google-facebook-digital-advertising/

https://www.forbes.com/sites/jeffbercovici/2013/11/13/facebook-wouldve-bought-snapchat-for-3-billion-in-cash-heres-why/#45529df343de

https://www.recode.net/2017/9/19/16308788/snapchat-instagram-sign-ups-new-users-us-global

After more than two decades, the Supreme Court has agreed to hear the repeal of the Professional and Amateur Sports Protection Act. PASPA, a federal law enacted in 1992 outlaws single-game sports wagering outside of Nevada. While opening arguments will commence in early December, a decision will likely not be reached until early 2018. Still, this is the furthest that the argument for a modernized and regulated sports betting market has reached. A decision in favor of repealing the law, which the state of New Jersey has claimed as unconstitutional can unlock a market worth several billion dollars.

While the Supreme Court gears up to hear opening arguments in this case, leagues across the world have begin to prepare for what is seen as the inevitable. Through partnerships, changes in stances, and sponsorships, leagues have been preparing for quite some time. In the two decades-plus since PASPA was first enacted, the world of sports has greatly changed.

PASPA was enacted in a way to protect the sanctity of the game. Fears of point shaving and match fixing forced the public and Congress to accept a bill that would seemingly fix such problems. However, in the years since daily fantasy leagues have taken their place in American society, sports leagues have taken sponsorships from casinos, and most importantly have led way to an offshore illegal market worth $150 billion dollars.

Take for example the über popular NCAA March Madness tournament. The annual affair draws fans from across the United States to fill out tournament brackets in which they predict who will move on. In recent years more and more fans have turned towards wagering their picks online.

The American Gaming Association estimates that roughly 40 million people fill out 70 million brackets with the average bet per bracket hanging around $29. This year the AGA estimated that Americans wagered $10.4 billion dollars on March Madness. Of the $10.4 billion wagered, only 3 percent or roughly $295 million will have been done so legally through Nevada sportsbooks.

What’s important to note is that while the United States Supreme Court has agreed to hear the repeal of PASPA, it does not come on the heels of the issue of the unfounded fears against match fixing or the billions of dollars being pumped into organized crime, but rather if the law violated the 10th amendment and the sovereignty of states when it was first ushered in. Still, the result of this decision can lead way to ending such widespread problems.

SportRadar a company that deals with data is partnered with three of the four biggest leagues in the United States. The company which provides real-time statistics for the NFL, NBA, and NHL. In addition to providing statistics used by broadcasters and bookies worldwide, SportRadar also monitors and reports on unusual betting trends. The company is also the parent company of BetRadar, a major figure in the gambling industry.

Likewise, the MLB which represents the fourth biggest league in the United States has a partnership with Genius Sports which acts in the same manner as SportRadar. Its executives met with sportsbook operators in September to gain a better understanding of how the industry operates.

These partnerships with data companies provide a stark shift in stance compared to just one decade earlier when representatives filed a letter dismissing the idea of monitoring books and the data that makes them up.

Outside of partnering with outside agencies, the NFL and NHL have both elected to move and create franchises in Las Vegas respectively. The Oakland Raiders of the NFL are set to arrive in 2019, while the Las Vegas Golden Knights have opened play this past week.

Attendees of Golden Knights home games will be able to readily bet within the confines of the T-Mobile Arena. The NHL had the opportunity to file a prohibition preventing sports betting from occurring as the game happens, however, elected not to.

The NFL in recent years has held games in London, England where sports betting is regulated and legal. Outside of moving the Raiders to Las Vegas, the NFL has also eyed creating a franchise in the country. The ability to bet in-game without the result being compromised is a look at the potential for such a feature in the United States.

NBA commissioner Adam Silver wrote in 2014 in the New York Times, “Times have changed since PASPA was enacted.” “I believe that sports betting should be brought out of the underground and into the sunlight where it can be appropriately monitored and regulated.”

Should PASPA be repealed, over a dozen states have already filed legislation this year that would permit wagering on sports in some way. The AGA estimates that a legal sports betting market would provide over 150,000 in jobs.

Steve Doty, Director of Media Relations, says that the AGA is committed to turning over PASPA and leading the conversation. “AGA looks forward to leading the conversation in states across the country to educate local lawmakers on sports betting.”

Company Eilers & Krejcik Gaming has taken a conservative approach to estimating the potential for a legal and regulated betting environment. They estimate in a base case that by 2023, if 32 states were to legalize sports betting in some form the market will be worth approximately $6.03 billion dollars in annual revenue.

If every state were to legalize gambling, including online wagering, the number expands to $16 billion dollars which comes from $245 billion taken in.

All of this comes on the heels of a Washington Post poll published in September which sees more than half of Americans supporting a legal and regulative sports betting environment. 55-percent approve of such an environment which serves as a drastic shift from nearly 25 years ago when PASPA was first enacted and 56-percent of Americans disproved of legalized sports gambling.

 

Poll: For first time, majority of Americans approve of legalizing sports betting – The Washington Post

Recent U.S. gambling legalization: A case study of lotteries – ScienceDirect

U.S. Sports Betting: A Sector On The Cusp Of Major Change | GamblingCompliance

Gambling – Where does sports betting legalization in the U.S. stand right now?

Sports Betting Ban Has ‘Perverse Effect,’ Says Casino Group – Poker News

NFL’s presence in UK shows how gambling can be done

March Madness Betting to Top $10 Billion | AGA

 

In 2012, former President Barack Obama created DACA, the Deferred Action for Child Arrivals, through an executive order—this program “has allowed hundreds of thousands of young people who were brought to the United States illegally as children to remain in this country,” said NBC News. In fact, The Cato Institute stated that these DACA participants, called Dreamers, have the opportunity to “receive temporary protection from deportation, work permits, and an incentive to invest in their own human capital” as long as they “have lived in the United States for five years or longer and do not have a criminal record.” In other words, Dreamers have been able to “achieve milestones typically associated with the American dream, such as pursuing higher education, earning better wages to support their families, and buying homes,” as explicated by American Progress. On September 5^th, 2017, Attorney General Jeff Sessions announced President Trump’s decision to terminate DACA which would essentially kick out about 800,000 Dreamers out of the country. This is not only inhumane, but will have an inevitable impact on the workforce in America—although both sides of the issue will be explored, DACA is more of a boost to the economy than a deterrent.

DACA recipients “are relatively well-educated, meaning they have the capacity to make the economy that much more productive,” according to NPR. The average age of DACA recipients is 22 and they “earn about $17 an hour on average, ‘tend to be younger, better educated, and more highly paid than the typical immigrant,’” said Time. As a 21-year-old at attending a reputable college like the University of Southern California, I have never had a job earning the wage of the average Dreamer—and have actively looked for one—which demonstrates their success and path to fulfillment of the American Dream. In exact numbers, the U.S. Citizenship and Immigration Services declared 787,580 people as DACA recipients through March 2017, and 87% of them are employed as conducted in an October 2016 survey by the Center for American Progress. Also to note, 6% of Dreamers “even starts businesses of their own, thus creating more jobs for others,” instead of taking them away, according to New Republic. The Cato Institute even compares the dreamers to recipients of H-1B visas, “skilled workers who are invited into the country to fulfill specific economic needs.” Most of the H-1B visa participants, like Dreamers, tend to be younger and more educated, thus, they have a closer resemblance than Dreamers do to other unauthorized immigrants. To note, it is crucial to separate DACA recipients in a separate category form other unauthorized immigrants.

According to a 2016 study in the Journal of Public Economics by Nolan G. Pope, “DACA moved between 50,000 and 75,000 immigrants into employment from either outside the formal labor force or unemployment, and increased the average income of immigrants in the bottom of the income distribution.” This is a step up for the economy because a higher income means more money to spend and being able to pay their taxes, thus, further stimulating the economy. The “extra money they made let to financial stability and a big increase in car and home purchases,” according to New Republic. On top of that, a 2014 survey by the American Immigration Council found that “59 percent of DACA recipients reported getting their first job, 45 percent received a pay increase, 49 percent opened their first bank account, and 33 percent got their first credit card due to their participating in DACA”—all factors that, again, boost the economy.

On the other hand, the White House’s main argument is that Dreamers are taking jobs away from Americans. At the press briefing on the day of Trump’s announcement, White House Press secretary Sarah Huckabee Sanders said, “I think that it’s a known fact that there are over 4 million unemployed Americans in the same age group as those that are DACA recipients” (qtd. in The Hill). Although it seems logical to believe that more jobs would open up for Americans if 800,000 DACA recipients no longer existed, but “[there] is no evidence of that,” according to chief economist at Moody’s Analytics Mark Zandi. First of all, the Bureau of Labor Statistics stated that the unemployment rate is 4.2 percent as of September 2017 which is the lowest it has ever been—to put into perspective, the last time our annual unemployment rate has been in the fourth percentile was a decade ago in 2007 at 4.6. This means that our job market is currently doing very well. President and CEO of economic research firm Perryman Group, Ray Perryman, adds, “I think the primary thing that would argue against [the White House’s claim] at this point is, we are at full employment with more job openings than at any point in history” (qtd. in NPR).

If the program continues as it has been, it could end up covering 1.3 million people, which means there is that much more potential for a more effective and productive workforce. But a study by the Center for American Progress shows that an average of 30,000 DACA beneficiaries will be out of work each month which becomes added pressure for employers to fill those spots in a short amount of time to maintain an efficient workplace—if the employers fail to do so, it could potentially result in the closing of their business, thus, Americans losing their jobs as well. And among the 800,000 Dreamers are those with valuable jobs such as in the health-care system. The Association of American Medical Colleges “projects the physician shortage could reach 105,000 by 2030,” as well as “lose nurses, nurse practitioners, pharmacists, medical researchers and slews of other professional and nonprofessional healthcare workers” by kicking out current medical students with DACA status. And not only will the shortage of health workers negatively impact our country, but the AAMC adds that “when physicians train in teams that are culturally diverse,” such as with Dreamers, “it improves outcomes because everyone is sensitized to the needs and customs of patients from immigrant and minority backgrounds.” So we aren’t just losing Dreamers, we are losing compassionate physicians—from diverse backgrounds and those who speak other languages—who help make the entire health-care system a more culturally adept place.

In addition to the fact that Dreamers aren’t taking away jobs from Americans, not even the “lower-educated or low-wage immigrants aren’t stealing our jobs,” according to New Republic. These immigrants compete on their own in an entirely different and more low-skilled workforce than those who are American born citizens, even natives without high school diplomas. While “[less-educated] native workers are over-represented in occupations that interact with the public and coworkers and that have supervising responsibilities, licensing requirements, and demanding mechanical and computer operations,” immigrants dominate jobs with manual or bilingual skills, according to Urban. Urban adds that the two groups “even could be complementing each other.” On top of that, a study by the National Academies of Sciences, Engineering and Medicine, research done by 14 leading economics and other scholars, states that “We found little to no negative effects on overall wages and employment of native-born workers in the longer term” (qtd. in the New York Times). The White House’s statements were simply false.

Not only are Dreamers efficient workers, but the removal of this program would be a huge hit to the economy. In fact, “removing the DACA immigrants from the economy would cost the U.S. $215 billion in lost economic output over 10 years, plus another $60 billion in lost taxes” and “[deporting them would cost another $7.5 billion, and when that’s added up the cost of ending the DACA program comes to a total of minus $283 billion,” according to the Cato Institute. Jeff Sessions argued that “expelling DACA permit-holders—again, many of whom are children—from the country is vital to protecting Americans from ‘crime, violence, and terrorism,’ alluding to the marauding bands of criminal undocumented immigrants,” said GQ. This is also not true because to be eligible for DACA, one must pass a background check as well as a screening process for felonies and misdemeanors. So we aren’t making America any safer by rescinding DACA—we are only increasing government spending and wasting taxpayer dollars on unnecessary deportation of those who have not only done no wrong, but are helping grow our economy. These “high-skilled immigrants add to the nation’s stock of human capital, boosting productivity and growth,” stated U.S. News.

Dreamers know of no other home besides America. And simply put, these Dreamers “never knowingly broke any law and have been productive and peaceful members of society since their arrival,” according to the Cato Institute. And with backed-up evidence that Dreamers are, in fact, not taking jobs away from natives—which is the White House’s main argument—and since they pose as no threat to the country—their other argument of Dreamers being potential criminals—, what are we waiting for? Currently, DACA is still due to expire in six months, although current permits will be honored until expiration.

Works Cited

Albright, Ike Brannon and Logan. “The Economic and Fiscal Impact of Repealing DACA.” Cato Institute. Cato Institute, 18 Jan. 2017. Web.

Bryant, Meg. “Ending DACA Would Damage the Provider Workforce.” Healthcare Dive. Industry Dive, 05 Oct. 2017. Web.

“Bureau of Labor Statistics Data.” U.S. Bureau of Labor Statistics. U.S. Bureau of Labor Statistics, 10 Oct. 2017. Web.

Covert, Bryce. “No, DACA Immigrants Aren’t Stealing American Jobs.” New Republic. New Republic, 07 Sept. 2017. Web.

Delk, Josh. “White House Claims DACA Recipients Take Jobs Away from Americans.” TheHill. Capitol Hill Publishing Corp., 05 Sept. 2017. Web.

Enchautegui, Maria E. “Immigrant and Native Workers Compete for Different Low-skilled Jobs.” Urban Institute. Urban Institute, 25 Mar. 2016. Web.

Horowitz, Julia. “Trump’s DACA Decision Could Cost Thousands of Jobs, Study Says.” CNNMoney. Cable News Network, 30 Aug. 2017. Web.

Kurtzleben, Danielle. “FACT CHECK: Are DACA Recipients Stealing Jobs Away From Other Americans?” NPR. NPR, 06 Sept. 2017. Web.

“National Unemployment Rate at 4.2 Percent through September 2017.” National Conference of State Legislatures. National Conference of State Legislatures, 6 Oct. 2017. Web.

Nicole Prchal Svajlenka, Tom Jawetz, and Angie Bautista-Chavez. “A New Threat to DACA Could Cost States Billions of Dollars.” Center for American Progress. Center for American Progress, 21 July 2017. Web.

Preston, Julia. “Immigrants Aren’t Taking Americans’ Jobs, New Study Finds.” The New York Times. The New York Times, 21 Sept. 2016. Web.

Salisbury, Ian. “DACA: Economic Cost of Deporting Undocumented Immigrants | Money.” Time. Time, 7 Sept. 2017. Web.

Stone, Chad. “The High Costs of Ending DACA.” U.S. News. U.S. News & World Report L.P., 29 Sept. 2017. Web.

Willis, Jay. “Jeff Sessions’ Rationale for Ending DACA Is Outrageously Disingenous.” GQ. GQ, 05 Sept. 2017. Web.

 

From the second quarter of 2014, there has been a sharp decline in global fuel prices, which not only meant a lot of extra money being saved for vehicle owners, but also meant major changes in the sales and profits of automobile manufacturers. Vehicles and fuel are dependent on each other, and the price and demand for one affects the price and demand for the other. The fuel industry is driven by car sales, and changes in fuel prices also greatly impact consumer spending on vehicles, which in turn affects the revenues and profits of automakers. There are different ways in which automakers can be affected by volatility of oil prices. Changes in oil prices affect overall consumer spending and behavior. Also the sales of fuel-efficient, high fuel consuming cars and alternative fuel cars are affected differently when hit by a substantial increase or decrease in oil price.

The trend in oil prices for the past three years is shown in the following graph published by the NASDAQ stock exchange.

 

The last three quarters of 2014 is the crucial period that is to be focused on when exploring the correlation between declining fuel prices and vehicles sales and profits made by manufacturers. A more comprehensive view of these quarters as compared with its previous years can be seen in the following graph.

 

The average oil price decrease through 2014 has greatly impacted consumer spending and saving. When oil prices go down, consumers think they are inevitably saving a lot of money. In a paper published by NACS, Jeff Lenard elaborated that fuel is a commodity that is intertwined into an average citizen’s everyday life and changes in fuel prices fundamentally impact consumer spending and behavior in different ways.

Firstly, some consumers might change their driving habits. When asked through a NACS survey why people were driving more when compared to the previous year, the answers by people from different genders and age groups were very close to the results summarized in the table below.

It is evident from this table that lower gas prices were 40% of the reason why people chose to drive less and these people were almost equally distributed throughout all the age groups. Hence this indicates that fuel prices have an affect on consumer spending and consumer behavior, which is critical to the sales of the automobile industry.

Secondly, consumers are sometimes able to make decisions on weather they will reduce their driving if gas prices increase. A different survey, also conducted by NACS explored this issue and asked people how much would oil prices have to increase for them to lower the number of miles they drive, and the results were summarized in the graph below. The graph below illustrates the average gas price for each month and the increase in the oil price that would have to occur for consumers to start reducing their driving. Most results show that if oil prices were even $1.00 more per gallon, there would be a direct effect on the number of miles driven by vehicle owners.

During changes in fuel prices, not only is consumer behavior changing accordingly, but people also feel differently overall about the economy which affects every industry, and the automobile industry is especially hugely affected by this. The overall feel of an economy is a subjective term that can be defined by varying characteristics. For example, it could be defined by many characteristics, like economic recessions, decline in the stock markets, or political instability. However, it could also be measured by more specific factors like decline in oil prices. For example a survey that asked target customers during 4 different years (with distinctive oil prices) about how they essentially felt about the economy, their response reflected that the there was more optimism in the economy within people and their consumer behavior during the periods of sharpest decline in oil prices. The outcomes of the survey are presented in the diagram below.

 

When people have a positive attitude towards the economy because of decline in fuel prices, they tend to be more liberal about spending money, because as mentioned previously, they think they are certainly saving money on gas (vehicle owners). As a result, this benefits the retail industry, and the sales and profits of automobile manufacturers are impacted in an interesting manner.

The data pertaining to light weight vehicle sales and oil prices throughout the years is displayed in the graph below.

It is evident from the graph the fluctuation in oil prices is not directly consistent with the sales of light weight vehicles. However, it would be useful to breakdown the broad category of these vehicle sales into categories to analyze the trend in detail, firstly, small light weight cars, secondly big SUVs and trucks and lastly hybrid or electric vehicles that do not run on fuel.

Small vehicles that have a high mileage, which means they drive for a high number of miles for the amount of gallons of fuel, and these vehicles are usually the more fuel-efficient vehicles. Fuel-efficient vehicles usually have higher sales during of periods of rising or high oil prices.

As can be seen in the graph below that is comparing fuel prices and sales small fuel-efficient car sales, the trends of both have been very similar. There is a direct correlation for the trends of oil prices and sales of small cars from 2010-2014.

The second category of cars that can be explored is large cars that include SUVs and trucks. These large cars are usually gas-guzzlers, which means they give a lower number of miles for a certain amount of gallons of fuel and hence consume a lot of gas. The trend between large car sales and oil prices from 2010-2014 can be seen in the following graph.

There is not a consistent relationship or trend between changes in oil prices and sales of large cars. For example, there is a major decrease in sales of large cars in the second and third quarter of 2010, but there is a decrease in oil price in the second quarter and increase in the second quarter. Also during the last two quarters of 2013, when the US was progressing towards recovering from the financial crisis of 2008, there was an increase in fuel prices but large car sales were slowly diminishing: which could have been because of their low mileage and fuel efficiency. During the period of decline in oil prices, the sales of large cars did not increase. It continued to decrease, but at a much lower rate. This shows that oil prices are not the sole factor that determine or influence car sales, especially in the large cars/SUVs segment.

The third and final category of automobiles that can be explored is the alternative fuel (electric or hybrid) vehicles. Within alternative fuel vehicles, there are electric cars and hybrid cars. Only about a little less than 1% of households in America drive an EV, so though they do not have a very significant contribution towards the automobile industry, it is extremely important to consider EVs, especially when comparing its trend with fuel prices, because EVs are the primary potential solution to the energy and fuel crisis. Analyzing the trends of sales of EVs is important because they are a key alternative to fuel run cars that will face a major crisis in the future.

The following graph shows the trends of oil prices as compared with electric vehicles, and there is almost no correlation between the two. However as mentioned before, electric vehicles only make up less than 1% of total car sales, and how oil prices affect EV sales would not drastically matter for the automobile industry as a whole.

Hybrid cars are cars which combine the systems of both a conventional fuel run engine and an electric vehicle. Hybrid cars make up a larger percentage of the automobile industry than electric vehicles. The graph below quantitatively compares the trends of changes in oil prices and sales of hybrid cars.

It can be inferred from this graph that the sales of Hybrid cars have been quite coherent with changes in oil prices, except for in the last few quarters of 2011. Similar to the trend in small cars, hybrid cars are also considered very fuel-efficient. Hence their sales go up as fuel prices go up because they do not require as much fuel to run for the same number of miles as other cars, and when fuel prices decrease, consumers inevitably think they are saving money and opt for bigger gas guzzler cars, reducing the sales of hybrid and small fuel efficient cars.

In conclusion, to answer the research question posed at the very beginning of this composition: fluctuations of fuel prices do affect car sales, but very distinctively for different categories of cars. Changes in oil prices both directly and indirectly affect car sales. Fuel prices directly affect car sales when trends in sales of a certain type of car changes correspond to trends in oil prices (for example small cars and hybrid cars). Changes in fuel prices indirectly affect sales of cars by influencing consumer spending and behavior, which is in turn reflected in every retail industry, including sales in the automobile industry. Fuel and cars are almost like complimentary goods from an economic perspective and hence the connection between oil prices and car sales is significant. Consumers’ decisions to purchase certain types of cars is however not solely dependent on fuel prices. A vehicle buyer takes a lot of different factors into account before buying a certain type of car. Also, with the swiftly progressing nature of technology, hybrid cars and electric vehicles have been revolutionizing the nature of the automobile industry. Though EVs do not make up a large percentage of car sales, hybrid cars, especially the Toyota Prius have been becoming increasing popular. Another interesting element to consider could be that many of the self driving cars being built by Uber have been focusing on increasing fuel economy, reduce oil use and curb carbon emissions, according to an article in the wall street journal, written by a former energy advisor for the government. This could also make car sales and decisions made by consumers less dependent on fuel prices. However, driving habits itself have been affected since the initiation of Uber, and car sales have been affected since, so it would be intriguing to see how much further effect the introduction of self-driving cars by Uber have on car sales. Nevertheless, fuel prices continue to affect sales of automobile manufacturers in a substantial manner.

Sources:

 

http://www.usatoday.com/story/money/2015/08/03/nissan-us-sales-up-8-big-vehicles-soar/31046075/

 

http://www.fuelsinstitute.org/researcharticles/fuel-prices-auto-sales.pdf

 

http://www.nacsonline.com/YourBusiness/FuelsCenter/Pages/2016-Retail-Fuels-Report.aspx

 

http://www.lazardnet.com/docs/sp0/18334/USConsumerAndCorporateBehaviorInALowOil_LazardResearch.pdf

 

http://www.nacsonline.com/Media/Daily/Pages/ND1114144.aspx#.V_xRSenBzzI

 

http://www.nacsonline.com/YourBusiness/FuelsCenter/Documents/2016/Consumer-Sentiment.pdf

 

http://www.ucsusa.org/clean-vehicles/electric-vehicles/bev-phev-range-electric-car#.V_1LV-nBzzI

 

http://blogs.wsj.com/experts/2016/04/27/how-driverless-cars-might-actually-harm-the-environment/

 

 

Traveling outside of Mongolia’s only major city, Ulaanbaatar, can seem like traveling back in time 800 years. Among the hundreds of miles of rolling hills in which you would be hard pressed to find any permanent, man-made structure, you half expect to see Genghis Khan’s enormous army thunder down a hill aboard hardy little ponies. Nomadic herding culture has been a part of Mongolia for thousands of years and it remains a major part of Mongolian life however, Mongolia’s economy is undergoing massive transformation that could change both the cultural and natural landscape forever.

From 2009 to 2013, the Mongolian GDP nearly tripled in size from a scant $4.584 billion (US) to $12.582 billion, according to the World Bank. Yet more important than the rise of the nation’s GDP is the source of economic growth and geographic location: valuable minerals and metals and its location just north of resource hungry manufacturing powerhouse, China.

The story of Mongolia’s rise from irrelevance to noticeable actor in the Asian sphere began in 1997 when the democratic government, established after the fall of the Soviet Union, which maintained Mongolia as a buffer against China, passed the Minerals Law of Mongolia. This law established the state’s ownership of all mineral resources within its borders and reserved the right to sell mining and exploration licenses.

The goal of this law was to grow Mongolia’s economy after a dip that left their GDP below the billion-dollar mark from 1993 to 1994. If the government could sell its mining and mineral exploration rights to international mining corporations, it could dramatically increase levels of foreign direct investment, lower unemployment, and raise GDP.

For investors, abundant Mongolian reserves of copper, gold, fluorspar, and uranium were highly attractive. Especially in the early 2000s when prices for rare earth metals and minerals were climbing. In addition to natural resources, Mongolia shares a border with China, the world’s largest importer of raw materials. This presents a lucrative opportunity to sell materials to China at a lower price by minimizing transportation costs that make metals and minerals from South America more expensive.

Combining natural resources with its proximity to China, a country that imported $25.1 billion in refined copper and $63.9 billion in gold in 2014, Mongolia looked like the world’s premier destination for mining operations.

After a few years of exploration on the Mongolian steppes, international mining mavens concluded that there were fortunes to be made and the investments started pouring in. From 2009 to 2011, a World Bank report found over a $4 billion increase in foreign direct investment from $623 million to $4.713 billion.

High investment was not meant to last. Beginning in 2012, foreign direct investment plummeted just as quickly and dramatically as it shot up. Investors likely balked at copper prices that plummeted in the second quarter of 2012. As a result, between 2012 and 2015, foreign direct investments fell $4.2 billion to a mere $196 million last year.

In spite of the massive expansion and contraction of foreign investment in Mongolian businesses, private international mining company spending on their own ventures has kept the GDP from shrinking even though growth has slowed. The exponential growth that started after the 1997 Mongolian Minerals Act peaked in 2013 at $12.583 billion, a 17 percent growth rate, but was followed by a downturn in GDP with growth rates slowing to 2.3 percent in 2015.

One such company is Turquoise Hill Resources Ltd., a subsidiary of the Canadian Ivanhoe Mines. It announced a $4.4 billion investment in underground development at its mining sight Oyu Tolgoi on December 14, 2015. Estimated to be the world’s third largest reserve of copper, Turquoise Hill originally invested $6.2 billion in 2013, after years of exploration and analysis, to begin production.

These investments, and others like them, have helped and continue to be a vital part of the Mongolian economy. In 2013, mining made up 16 percent of the GDP and the exportation of copper, gold, and coal made up 65 percent of exports in 2012.

In spite of goals to bolster the economy, the Mongolian government has not opened the floodgates to capitalist investment in such a way that would allow foreign corporations to lay waste to the Mongolian countryside, people, and economy to benefit their bottom lines. The emphasis is on sustainable and fair growth.

In order to include Mongolian interests in mining decision making, the Mongolian government and Turquoise Hill spent five years negotiating the Oyu Tolgoi Investment Agreement. The agreement states that the state has a 34 percent equity stake in the mine with the ability to renegotiate their ownership to 50 percent as soon as initial investments have been recuperated.

Additionally, the agreement holds the investor accountable for regional economic development, adhering to national and international environmental standards, contributing to national infrastructure, maintaining a workforce that employs mostly Mongolians, and investment in the education of the Mongolian people.

Leveraging the Oyu Tolgoi mining contract with Turquoise Hill has allowed Mongolia to begin developing more evenly than some of its resource rich peers, who sold extraction permits heedless of local peoples’ needs and health, such as Ecuador. In creating stipulations that require the mine to be staffed 90 percent by Mongolians, with 50 percent of engineers being Mongolian citizens within the first five years of operation, holistic development is at the center of project.

As a result, GDP per capita increased, poverty rates decreased, and unemployment rates shrank. Since the beginning of development at the Oyu Tolgoi mine in 2011, GDP per capita has grown over 800 percent. The GINI Coefficient, a measure of income distributions in which a value of 0 represents perfect equality and 100 represents absolute inequality, Mongolia is rated a 36.5, a ranking very similar to that of China.

Recently, however, growth has not been as impressive as it was in 2011 and 2012 during which GDP growth was in the double digits. In 2015, growth slowed to 2.2 percent. This has in turn caused the Mongolian currency, the togrog, to plummet in value.

Many economists blame Mongolia’s economic downturn on changes in the slowing Chinese economy. China, which is the destination of 80 percent of Mongolia’s exports, has decreased its demand for commodities like copper and coal which has driven down international commodity prices significantly. This serves as a double blow to the Mongolian economy because China is not buying as much and prices are falling in the international marketplace.

Because of slow growth and a faltering Chinese economy, investors who were drawn to invest in the Mongolian government due to the profitability of mining, have quickly sold government bonds, raising the supply of the currency, and further exacerbating the devaluing of the togrog. In order to mitigate these affects, the Mongolian central bank raised interest rates to 15 percent in August. Theoretically, this will curb currency depreciation by incentivizing investors to invest again, which will increase demand for Mongolian currency. But, for now, the strength of the togrog is still a major source of concern for Mongolia.

Regardless of its economic impacts, mining has had some secondary, unintended negative affects on the Mongolian people and environment. As the economy grows, due in large part to the mining industry, there exists an unrivaled concentration of wealth and opportunities in the few cities and mining towns in Mongolia. As a result, there has been a rapid increase in levels of urbanization.

This population shift is common in developing countries because many city and mining jobs are more productive and therefore more profitable than agriculture.

While this trend is the norm in many developing nations, Mongolia’s rich cultural heritage is based in its traditions of animal husbandry and nomadism, which are increasingly viewed as economically uncertain and therefore undesirable ways of life. The increasing frequency of unusually cold winters, called “zuud,” are intensifying movement to urban areas as herds die off on the ice covered steppes. These extreme weather conditions have been attributed to pollution and its affects on climate change.

To move to the city, many families sell what remains of their herds, which have traditionally served as a source of food in the form of meat and dairy, clothing made from the wool of sheep and goats, and even fuel from manure to ward off the frigid winters. Since so many herders have relocated to Ulaanbaatar in particular, the outskirts of the city are crowded with “gers,” traditional felt tents, that lack running water and proper plumbing.

While these ger areas are difficult to manage in the summer months, it is during the winters, when low temperatures average around -28 degrees Fahrenheit, that real problems arise. In order to keep warm and cook, many former nomads living in gers burn coal and wood. Air pollution is so bad in the colder months that it exceeds the World Health Organization’s most lenient standards by 600 to 700 percent.

This creates a spiral of urbanization. As more nomadic families leave the countryside and gather in mining towns and cities, pollution increases thereby worsening and increasing the frequency of hard winters, forcing more families to trade their herds for mining or manufacturing jobs.

Without intervention, urbanization could potentially lead to the disappearance of the nomadic traditions that have inhabited and characterized the region for over one thousand years.

When I first came to the United States with a student visa eight years ago, I dreamed of working in the states because my friends and family members had been talking to me about how America is the land of opportunity. Yet, it is very interesting for Koreans to view how the United States has more opportunities than Korea because South Korea has had lower unemployment rate than the United States has had by having the unemployment rate of 3.2% in 2008.

Just looking at data on 2005, South Korea was ranked as the number one country to have the largest population of students studying abroad in the states. According to an article in Radio Korea in 2006, the U.S. had 117,755 Korean international students. Furthermore, the article states how most of South Koreans wanted to live and work in America between 2005 to 2006.  This sentiment indicates how many Koreans (either students or workers) regarded the United States as the economic powerhouse where it was very desirable to leave their homes.

Though South Korean youths dreamed about immigrating to the United States, there was a problem. For countries with low birth rates, it is advantageous to attract intelligent and talented foreigners to expedite countries’ development. In case of South Korea, the foreign workforce in the country has been concentrated in manual labor, which does not require high education background. Does the allocation of foreign workers in manual labor mean that South Korea has a high birth rate? No, the World Bank Statistics in 2014 indicates that South Korea has  suffered from low birth rate of 1.21 children born per women.

With low birth rate and less welcoming of educated workers, South Korea should have a great education to promote R&D. However, there is an indication where the  intelligent and talented Koreans are avoiding to work in their homeland when they are getting PhD through studying abroad. According to the Korean Institute for International Trade report on 2006, South Korea had brain drain of 1.4% from 1990 to 2000 and it has not been getting better at all.

Why would the students be hesitant to go back to their country? Is it economically bad to go back to Korea? To answer this, it is important to compare Korean economic history between 1990s and today because the change in economy and social consciousness may be the reason for the brain drain.

Until the Asian financial crisis in 2007, South Korea was having the prime time of its economic prosper. According to the article Finance and Growth of Korean Economy from 1960 to 2004 in Seoul Journal of Economics by Shin-Haing Kim, the political shift from military despotism to democracy made better environment for Korean economy to grow. The democratization of politics in 1987 fostered economic liberalization and brought higher wages. In 1996, South Korea became the member of OECD (Organization for Economic Cooperation and Development) by meeting the requirement of having enough income per capita.

Despite the increase in wages ensured Koreans to have high hopes for further economic growth, Chaebol economy ultimately triggered South Korea to fall into Asian financial crisis of 1997. Chaebol (재벌) is a unique economic faction in Korea that is equivalent to family owned conglomerate. In the 90s, the government favored Chaebols and started to implicitly guarantee loans for them. In the essence, the government guided the fund allocations towards Chaebols by favoring them; the process of non-biased surveillance and evaluation of risks was skipped. Where the loans should have been granted equally to small business owners and firms, the loans were concentrated to Chaebols. In turn, the Chaebols became too big for the government to bailout when they were in debt. Consecutively, the foreign investors lost confidence in the ability of Korean economy to protect loans and many loans were withdrawn. As a result, big Chaebol corporations such as Hanbo, Sammi, Jinro, and Kia defaulted and the government had no power to bail them out. With the Chaebols fallen, South Korea faced a great amount of debt and South Korean government reached out to International Monetary Fund for financial remediation.

In 1998, South Korea had a record low GDP growth rate of -7% and it seemed that all hope was lost. However, Korean people rose up together and voluntarily accumulated 227t of gold to recover from financial crisis. According to an article in Korea Daily, the Koreans at the time submitted their luxury assets like gold bracelet and wedding rings to support their homeland to get out of the crisis. Though this campaign was not the main source of Koreans to escape from crisis, South Korea was able to pay the debt and interests to IMF  one year earlier than it was expected to.

Entering 2000s with free of IMF debts, South Korea has emerged as one of strongest Asian economic hubs alongside of China and Japan. From 1998 to 1999, the GDP growth had a miraculous increase from -5.7% to 10.73% according to data listed on The World Bank. From 2000 to 2015, South Korea’s GDP growth in 2000s is recorded to be 4.25% in average, which is bigger than the average United States’ GDP growth in 2000s (1.929%). Though the export heavy economy of South Korea has been showing slow growth, the unemployment rate has been low as 3.5% in 2016. However, the surviving Chaebols still assume a great power in economy and politics in Korea.

Economy definitely has gotten better for South Korea. However, the students who received doctorate degrees overseas state that they prefer staying outside Korea due to the disadvantageous circumstance they face as they get back. Mostly, the brain drain (phenomenon of talents emigrating into other countries) in South Korea is shown by the engineering and science talents migrating into the United States. According to Meil Business Newspaper’s analysis from the 2016 report of American National Science Foundation, 65.1% of Korean international students with doctorate degrees in engineering and science favored to stay in the states.  MBN also interviewed one of the international students who recently received a doctorate degree in engineering from Stanford. He said, “If I return to Korea, I may have to say permanent good-bye to my family. There are no universities offer me to be a professor and the jobs offered by corporate labs are all far away from the main city. I rather try to get a job at the U.S. defense company so I may get a citizenship. I know I may face racism, but I think being a second citizen is better than having no place in Korea”.

According to Radio Korea, international students with doctorate degrees in engineering/science leaving South Korea has increased from 2006 to 2016 by 170%. Yet, staying in the United States can often pose more problems for the Korean talents. In order to work in the U.S., the international graduates need to apply for jobs that sponsor working visas, and it is not an easy task. According to myvisajobs.com, the rate of U.S. companies granting visa sponsorship to foreigners in 2013 was roughly 55%. In other words, only the half of total international graduates may work in the states legally. In addition,  obtaining employment as a foreigner in the U.S. is a very painstaking process. First, the foreigner needs  Permanent Labor Certification(ETA Form 9089). Then the foreigner needs an Immigrant Petition for Alien Worker(Form I-140). And finally, the foreigner needs an Adjust of Status to a permanent resident of the United States(Form I485). It is definitely not an easy process to go through. 

Despite this not-so-favorable employment condition in the United States, the South Korean engineering/science talents desire to stay in the U.S. after getting doctorate degrees because the Korean academia does not socially welcome them . As stated in the interview above, becoming a professor in Seoul is extremely difficult for Korean international graduates. To begin with, the Korean work space culture often repel the international graduates. According to the book The Korean Mind by De Mente and Boye Lafayette, Korean workers inside Korea value the concept of “Anshim” or 안심. Mente and Lafayette describe “Anshim” as a “peaceful heart” state of mind that is developed from Buddhism and Confucianism. Though this concept is about finding peace in mundane, it also reflects how close-minded the Korean people are. Mente and Lafayette further comments on this state of mind in their book that “Anshim” dictates Korean language, etiquette, ethics, personal relations, and even business relations. For “Anshim” state of mind, irregularity is a very negative force. For the case of talents returning with doctorate degrees overseas, those talents are the irregular force that will invade the safe space of academia to the professors in Korean universities; the degree earners come back with American demeanor and suggest ideas that are not common in Korean academia. In turn, the Korean professors will outcast the foreign doctorate degree earners; this creates the similar discrimination as racism in the United States.

Furthermore, becoming a researcher in Korea is not profitable to the U.S. graduates due to poor wages. For example, the U.S. offers $80,000~$90,000 as the first annual income but Korea offers about $35,707 (converted from 40,000,000 Korean Won). For the less wages and cultural discrimination, Radio Korea criticizes Korea for not providing solution to these returning doctorate degree earners.

Interestingly, the amount of Korean international students in the U.S. has decreased over the years, contrary to the concern of the brain drain and falling demand in international students’ willingness to return to Korea. I compared the statistics of U.S. Immigration and Customs Enforcement report on 2014 and 2016. Between those years, the percentage of Korean students studying abroad in the U.S. drops year by year. The Financial News (Korean news agency) also has reported that the amount of U.S. dollars Koreans spent on studying abroad in the U.S. decreased from $1,920,000,000 on 2013 to 1,570,000,000, which is 18.1% decrease over the three-years period. According to its statistics, the Korean international students fell by 20% from 2011 (262,465) to 2015 (214,595)  because there are no longer additional merits the international degrees offer to students who strive to get jobs in Korea. According to the Korean Ministry of Employment and Labor, the labor market is not favorable to the student population. In 2013, the ministry stated on an article in Ulsan Daily that the total unemployment rate was 4% but the youth unemployment rate (15 to 29 years old) was 9.1%. The ministry sees the rate of achieving higher education as the problem. By 2011, 72.5% of youth work force had university degrees; thus, the youth work force became overqualified for most of jobs offered. This was the same for the returning studying abroad students as well. Since there has been an increasing trend of students who studied abroad from 2006 to 2011, the international degrees lost its values; the supply increased but demand fell down.

Besides the increasing supply of international degrees losing its value, the United States’ sentiment on foreign workers affect the decrease in value of degrees outside Korea. According to the interview Dong-A Daily (Korean News Outlet) had with a Korean employer in the states, he said: “The U.S. government demanded answers for my decision to hire a Korean international student. They came to the office very frequently to find any wrongdoing of my company just because I hired non-U.S. citizen.” According to Dong-A, there are similar cases in which the employers made a policy within the company to only hire U.S. citizens because they want to avoid any trouble. This sentiment is also clearly shown in this presidential election. The policies regarding international students have been tweeted and stated by both candidates.

As introduced in Little Book of Economics by Greg Ip, ideas, population, and capital are crucial for economic growth. On this issue of global talents immigrating and emigrating, ideas and population are directly influenced by those talents. As mentioned above, it is a great strategy for developed country with low birth rate to welcome more global talents and acquire jobs to make up for the low birth rate and further innovation. Yet, a recent phenomenon of global talents returning to their native countries after acquiring degrees and doctrine makes Korean problem bizarre. According to an article in the Huffington Post, the “People born in developing countries move to well-developed ones . . . but with the passing of time, some of them are willing to go back to their native country ‘to breed in the area where they were born'”. Just as Huffington Post describes with many international students from China, Kenya, and Italy, Korean students should also feel more confident to use the knowledge they have acquired from the U.S. universities in their own native countries.

The highly intelligent Korean international students not returning to their homeland can be damaging to Korean economy because the innovation may slow down. In any market competition, research and development are very crucial. Yet, the phenomenon of South Korean students who have potential to advance the R&D in their homeland getting discouraged by the work environment is definitely an issue Korea needs to solve in the future. The prime reason for the bad environment is the Korean university boards. According to the Hanguk-Kyungjae (Korean economics newspaper), Korean universities lack interdisciplinary system. Even though the Korean board of education publicly promoted interdisciplinary education, the professors in academia thought otherwise. The article describes that the professors think if professor A in one field of study tries to fuse his or her field of study with professor B’s field of study, they think of this phenomenon as an invasion instead of innovation. This view clearly has to do with aforementioned Korean state of mind, “anshim”. Due to the fact that “anshim” culture makes the academia to be very close minded, interdisciplinary education only exists as a noun. This problem is what repels the foreign doctorate degree earners as well. The students who earned their doctorate degrees in the United States are very used to interdisciplinary studies that they may want to research further when they become professors in Korea. However, the cultural state of mind hinders their motivation to come back and contribute to the close-minded academia.

The Hanguk-Kyungjae further sees this exclusivity problem in Korean academia as the main factor of not-returning intellectual talents who have acquired degrees overseas. Although South Korea has experienced tremendous of economic prosperity ever since the end of the Cold War due to innovative technologies in electronics and automobiles, the experts see that innovation is slowed down because of the exclusive culture in academia and it will slow economic growth even further. Though the number of Korean international students are declining, the brain drain issue is critical in South Korea because it will eventually slow down the competitiveness of Korean products. Though those are my worries, the future is still unknown because of the youths in Korea. Every year, the youth population are moving in the direction of becoming more open-minded than the generation before them. If Koreans continue to try, the struggle for returning foreign degree earners might meet its end. Culturally, Korea has definitely become more progressive compare to its very conservative past. Just as it is a remedy for everything, time may be the answer for the perception Korean academia has on foreign degree earners; thus, the problem of brain drain may be over in the future.