Regarding the ICC price increase, I guess only time will tell whether it was a smart move for ICC or not. I think someone said that it's been a long time since ICC increased prices. So if you factor in the inflation rate, the increase wouldn't seem so bad. Maybe ICC is hoping that, because of the good economy, most people will have a lot of discretionary income, just shrug at the increase, and continue their subscriptions. But the potential downside risk for ICC is that Playchess (and to a lesser extent, FICS) provides stiff competition to ICC. And if ICC doesn't keep innovating and improving the site, people will eventually walk over to the competition. I for one would like to see ICC going to a real GUI interface. (But not being a software expert, I don't know how expensive that would be for ICC.) Exitgentsky mentioned that ICC promises improvements in the near future. For their sake, I hope they follow through with that promise in a significant way.
Regarding Buddy's first sentence, although a monopoly (or near monopolistic group of companies) does complicate the picture, it's not absurd at all to talk about capitalism and profits when referring to a monopoly. Even a monopoly has to make a decent profit for its stockholders. If not, the stockholders will take their capital and walk to other companies where profits are better. It's no different than a saver noticing that the bank where he has his savings is only paying 3%, while one of the competing banks is paying 10%. Assuming no difference in risk between the two banks, the saver is going to say "To heck with the 3%, I want the 10% that the other bank is paying." Politicians would love nothing better than to deny a monopoly its profits, because that would translate into instant votes for the politicians. (See, voters, we stuck it to the evil monopoly, now please vote for us!) But the politicians know that this isn't possible, because if they denied the monopoly a decent return on capital, the capital would walk, and the company would implode. Then the only recourses would be either a government bailout or a complete government takeover of the company. (Neither option is good for generating votes for the politicians.) Also, a complete government takeover of a monopoly would probably result in even worse efficiency than before the takeover.
Regarding cmsMaster's comment, the only US company that I briefly looked at recently was ExxonMobil, since it was the company that the media was screaming about making "record profits". What you have to be aware of is that because the price of oil has gone up recently, it costs companies like Exxon a lot more in material costs before they can even refine gasoline. So because their cost of materials has gone up dramatically due to the increase in the price of oil, they have to charge more in absolute costs to maintain an average percentage earning figure.
If I can illustrate that with a quick example. Let's say you have a business, and you make and sell widgets. You sell 1 million widgets a year for $110.00 each. The total cost for you to make each widget is $100.00. So it costs you $100 million to make the widgets, and you sell them for $110 million, for an annual profit of $10 million. The cost of your capital was $100 million, you made $10 million, so your earnings were at an annual rate of 10%.
Now suppose the cost of some component or material needed to make the widgets increases dramatically overnight. (Not unlike the recent spike in oil prices.) Now it costs you $200 to make each widget. So you scrape up extra capital (borrow the money or issue additional shares of stock, whatever) to allow you to make the 1 million widgets for the next year at the higher manufacturing cost. So now it costs you $200 million to make the 1 million widgets. In order to earn the same 10% return on investment like you did the previous year, you now have to sell each widget for $220. ($220 sales price divided by $200 manufacturing cost = 1.10, or 10% annual earnings.)
So, because your cost to make the widget has skyrocketed, you have now earned "record" absolute profits of $20 per widget, versus $10 per widget the previous year. ($20 million in profits this year versus $10 million in profits last year.) Note that this is a 100% increase in absolute profits from the previous year! But notice that because of the higher manufacturing cost, you still only made the same 10% return on investment, the exact same return as last year based on a percentage basis. [End of example :-)]
Getting back to Exxon, I only quickly ran through the Exxon numbers a few days ago, and I think the 2nd quarter earnings on an annualized basis were around 10%. That's better than British Gas, but not what I'd consider outrageous. Many businesses regularly earn in excess of 10% annually, and nobody cares (nor should they). The only reason people get upset about Exxon is because they hear the words "billions in profits", and their blood pressure hits the roof. What the media conveniently forgets to tell the listener is that Exxon is a HUGE company. But if the media reported the profits on a percentage basis and said that Exxon earned 10% last year, people wouldn't be as likely to listen to the news reports or buy the newspapers.
Oh, and by the way, regarding BG, I didn't say "6.7% of a few billion." What I said was earnings per share of 6.7%. Meaning, for every dollar invested in the company's stock, the investor got back $1.067 one year later. (Or whatever monetary unit you want to use.)
I hope I've responded to most of the important questions or comments, but frankly, I've spent far more time on this topic than I originally intended. I can recommend a couple of good, easy-to-read introductory economics books if anyone is interested. One is Basic Economics, by Thomas Sowell, and the other is Economics In One Lesson, by Henry Hazlitt. You may not be interested enough to buy the books, but maybe your library has them.
ICC raises rates
30 Jul '06 16:19
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