JOHN GAPPER
There is what I found a rather remarkable piece in the FT this morning by Irwin Stelzer, director of economic studies at the free-market Hudson Institute, praising Neelie Kroes, the EU competition commissioner and taking an anti-trust dig at Anton Scalia, the right-wing Supreme Court justice.
Mr Stelzer’s support for the EU’s action against Intel may be influenced by his consulting role to AMD, which complained to the EU about Intel’s pricing strategy and aggressive use of discounts. Even so, such a strong stance in favour of the European style of anti-trust is striking:
“Take it from a conservative economist who prefers less to more government: if markets are not competitive, or if they are otherwise failing to function properly, it takes the long arm of government to protect the invisible hand. Let us hope that this view is shared by Mr Obama’s Supreme Court nominee, Sonia Sotomayor – and that she is prepared to take on the formidable and otherwise estimable Justice Antonin Scalia, who has little use for the antitrust laws”
The signs are, as Mr Stelzer points out, that the US anti-trust regulators will fall in line with Europe’s more vigorous approach in future. Silicon Valley, and big business, should watch out.
Rampant Twittering in parliament and at work
Somehow it was bound to happen. The “Twittergate” scandal involving German members of parliament who leaked the result of the president’s re-election is symptomatic of the current craze for Twitter among the world’s politicians, business people and media types.
As the FT reports this morning:
Julia Klöckner, of chancellor Angela Merkel’s CDU, told her Twitter “followers” that afternoon: “People, you can watch the football in peace. The vote was a success.” Ulrich Kelber, of the SPD party, was even more specific, prematurely uploading the result of the vote-count to his micro-blog: “The count is confirmed: 613 votes. [Horst] Köhler is elected.”
Ms Klöckner later apologised for the “somewhat premature timing” of a message. She has stepped down from her party role in Germany’s parliament.
That comes after various New York Times journalists Twittered about an internal meeting at the paper, which covered topics such as digital business models, irritating Bill Keller, its executive editor.
Lots of organisations are trying to draw up new rules to deal with Twitter, which is not only a real-time tool but crosses the divide between professional and personal use.
I cannot help thinking, that this horse has left the stable. The notions of embargoes, and of confidentiality itself, are inevitably strained by everyone being able to broadcast their thoughts instantly to all those who care to listen.
The text-messaging phenomenon among teenagers has just transferred to the business and professional world, with unruly results.
When not cutting prices becomes a luxury
My column in the FT on Thursday is about luxury and premium good in the downturn:
The harder they come, the harder they fall, one and all. The decade of decadence, of affordable luxury and premium everything, from expensive spirits to fashion label clothes and first-class air travel, is over.
It was, of course, an illusion to imagine that the business cycle had gone away in historically cyclical industries such as airlines and luxury goods. But the years of expansion carried on long enough, with only a brief interruption in 2001, that a lot of people came to think so.
They have changed their minds. Virgin Atlantic expects to lose money in this financial year. Giancarlo di Risio, chief executive of Versace, is to step down after falling out with the family amid a 13 per cent fall in revenues in the first quarter.
Double-digit falls in demand for luxury and premium goods and services are common in recessions but this hangover is especially sharp. Big airlines suffered a 35 to 40 per cent fall in revenues from international first- and business-class passengers in the year to March.
So what should such industries do when faced with a slump in consumer demand? The textbook answer is to cut costs, curb output and do everything possible to adjust – apart from slashing prices.
“You must accept that you will sell less but the biggest mistake is to cut prices across the board and ruin your brands. People are not refusing to buy because prices are too high, but because they are frightened and are hoarding money,” says Hermann Simon, chairman of Simon-Kucher, a pricing consultancy.
There is logic to what Mr Simon says. Even for non-premium industries it takes three to five years to get consumers to pay the full price again once you have started discounting. As for luxury goods, price-cutting rips apart the industry’s artfully constructed image.
Discounting can exact a terrible price, as the imminent bankruptcy of General Motors shows. The company was the king of cheap finance and price-discounting even in the good times; it was left with thin to non-existent margins, having put its brands through the crusher.
But the reality for many companies (happily for consumers) is that they have no choice. Luxury and premium brands have grown so much – and reached so far into the mass market – that their owners cannot choose from a menu of cutting costs, output or prices. All are required.
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