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10 posts from November 2015

Market Power: Why You Pay More For Products And Services, Get Less, And Earn Less

During his review of the book, "Saving Capitalism: For the Many, Not the Few" by Robert B. Reich, Paul Krugman discussed "market power." This is how monopolies (and oligopolies) affect the prices consumers pay for products and services in the marketplace. Mr. Krugman cited several examples of monopolies (and near monopolies) which consumers (and labor unions) should be aware of. First some background:

"Market power has a precise definition: it’s what happens whenever individual economic actors are able to affect the prices they receive or pay, as opposed to facing prices determined anonymously by the invisible hand. Monopolists get to set the price of their product; monopsonists—sole purchasers in a market—get to set the price of things they buy. Oligopoly, where there are a few sellers, is more complicated than monopoly, but also involves substantial market power."

How economists approached the concept of market power:

"Milton Friedman, in a deeply influential 1953 essay, argued that monopoly mattered only to the extent that actual market behavior differed from the predictions of simple supply-and-demand analysis—and that in fact there was little evidence that monopoly had important effects.Friedman’s view largely prevailed within the economics profession... It’s increasingly clear, however, that this was both an intellectual and a policy error. There’s growing evidence that market power does indeed have large implications..."

Some examples of market power to the detriment of consumers:

"... most Americans seeking Internet access are more or less at the mercy of their local cable company; the result is that broadband is both slower and far more expensive in the US than in other countries. Another striking example involves agriculture, usually considered the very model of a perfectly competitive sector... Monsanto, now dominates much of the sector as the sole supplier of genetically modified soybeans and corn. A recent article in The American Prospect points out that other examples of such dominance are easy to find, ranging from sunglasses to syringes to cat food."

Read about more examples. This blog has discussed in detail the monopolist behaviors by Internet service providers, the lack of competition in key markets, proposed legislation to encourage competition to help consumers, blocking efforts by other politicians, and why consumers in the United States pay more and get slower speeds for broadband. Now you have an idea why the big banks have threatened to withhold campaign donations and lobby against credit unions. The big banks want less competition, so they can raise prices.

If you're feeling squeezed by high prices, you are. Middle-class workers are being squeezed where companies with market power both charge higher prices than otherwise for products and service, and offer lower wages (bold added):

"Other evidence points indirectly to a strong role of market power... there is an extensive empirical literature on the effects of changes in the minimum wage. Conventional supply-and-demand analysis says that raising the minimum wage should reduce employment, but as Reich notes, we now have a number of what amount to controlled experiments, in which employment in counties whose states have hiked the minimum wage can be compared with employment in neighboring counties across the state line. And there is no hint in the data of the supposed negative employment effect. Why not? One leading hypothesis is that firms employing low-wage workers—such as fast-food chains—have significant monopsony power in the labor market; that is, they are the principal purchasers of low-wage labor in a particular job market."

Yet, many politicians claim that raising the minimum wage raises unemployment. Now you know that, a) these politicians are protecting the oligarchs and monopolists; and b) why that isn't true. Think of it this way: in a free country, labor unions are a right by employees to band together to gain some power in  the marketplace; just as corporations band together in industry associations employing lobbyists. No wonder most corporations (and their bought politicians) oppose unions.

It doesn't have to be this way. Most people:

"... tend to think of the drastic decline in unions as an inevitable consequence of technological change and globalization, but one need look no further than Canada to see that this isn’t true. Once upon a time, around a third of workers in both the US and Canada were union members; today, US unionization is down to 11 percent, while it’s still 27 percent north of the border. The difference was politics: US policy turned hostile toward unions in the 1980s, while Canadian policy didn’t..."

Hopefully, this has connected the dots for people wanting to understand what is happening in the economy and why. Thanks to both Mr. Reich and Mr. Krugman. What are your thoughts about market power? About Mr. Reich's book? About Mr. Krugman's book review?

Safe Shopping Tips For the Holidays

The holiday shopping season is here. Experts estimate that consumers will spend about $83 billion. Everyone wants to shop safely and avoid both identity theft and fraud. The California Attorney General's office issued several safe-shopping tips for consumers that are applicable everywhere and not only in California. Some of the items were already covered in this blog, so I added links.


  • Shop at secure websites. Look for https in the website address, or for the yellow lock icon
  • Don't shop online at public WiFi hotspots, such as coffee shops. This can put at risk your payment information (e.g., bank account, credit/debit card numbers, etc.). If you must use a public WiFi hotspot, use encryption software on your mobile device.
  • Do not send personal and payment information in e-mail messages. Legitimate companies won't ask you to do this, since it is an insecure way of transmitting information. Learn to spot package delivery scams.
  • Use reputable websites when booking travel or lodging for trips. However, scammers also insert listings on vacation websites. If the price is too good to be true, it usually is. Learn to spot vacation payment scams.
  • Identity thieves and fraudsters use mobile apps. Before purchasing an app, find and read independent reviews. Also, read the terms of use and privacy policy for the app desired. Download and buy apps only at reputable websites. Use these tips to protect your phone from online crime.
  • If you receive text messages on your phone claiming you have won a prize or gift card, do not click on the link in the message. It probably is a scam and may install a virus on your phone. E-mail scams are common. Learn to spot phishing e-mails. Be wary of e-mails from persons claiming to be a shipping company. These e-mail message often contain attached files that contain computer viruses. Do not open attached files from strangers.
  • Consider using a two-step process to protect your email account and sensitive personal information. For example, after inputting your password, you will then receive a text on your phone, that provides a one-time-use code to sign into your e-mail account. Your e-mail provider has instructions about how to set this up.

In Stores

  • Thieves use handheld scanners and counterfeit credit cards to use gift cards that they do not actually have. Only buy gift cards that are kept behind the store’s customer service counter or activated upon checkout. Before buying the card ask for it to be scanned to show that it is fully valued.
  • Learn to spot and avoid prepaid gift card app fraud.
  • Package theft is happening more frequently. If you do not have a secure area for delivery companies to leave packages, consider requiring a signature for packages, or have your packages held for pickup at a nearby shipping center.


  • Review your bank and credit card statements frequently for fraudulent transactions. Contact your bank or card issuers immediately if you see unusual or suspicious transactions.
  • If you receive a phone call from somebody claiming to be your bank or credit card company, who asks you to verify your account information, don't. Instead, ask them for their phone number so you can call them back. Then, call the phone number listed on the back of your credit card.
  • Learn to spot and avoid prepaid card phone scams.
  • Parents and grandparents should be wary of phone calls, e-mails, and social networking posts by scam artists pretending to be a child, friend, or relative stuck in an emergency abroad and needing cash immediately. Scammers try to get the victim to wire cash or disclose sensitive personal and financial information. Don't do this. Before taking any action, verify the health or status of the child, friend, or relative abroad.
  • Use these ten tips for safe vacation travel.

Happy holidays!

Mobile Banking In Africa Without Banks

Last night, the "60 Minutes" news magazine broadcast an interesting segment about mobile banking in Kenya without banks. Since 80 percent of citizens have mobile phones, the country' took the innovative approach of allowing consumers to easily and securely pay for products and services via their mobile phone provider.

Meet M-PESA. Mobile banking without banks.

It is possible. It can happen. No bank accounts. No credit reports. No prepaid cards. No payroll cards. No digital wallets. No payment processors. And, Kenyans don't need the latest Apple iPhone or Android Galaxy phone. A far simpler system. Safaricom, the Kenyan mobile service provider, launched M-PESA in 2007. The mobile payments system was designed for the most basic phones with text messaging capabilities. A smart approach that puts consumers' needs first.

The segment highlights several issues:

  • All digital wallets are built based upon traditional banks and payment processors. No so with M-PESA
  • Silicon Savannah: digital innovation is happening globally, and not only in Silicon Valley
  • Banking deserts: traditional banking, with branch offices and tellers, comes with a cost structure making it difficult to provide services to poor people. Yes, there are banking deserts in the USA, too. (Bankers prefer to label consumers in banking deserts as unbanked or underbanked.) Read about HOPE which servers farmers in the USA
  • We live in disrupting times. Online services like AirBnB and Home Away have disrupted the hotel industry. Services like Lyft and Uber have disrupted the taxi industry. Perhaps, the banking industry is next, given its hold on politicians, politics, government regulation, and the economy by "too big to fail" banks or "too big to jail" bankers
  • Mobile devices are marketed in the USA like cars, with slick advertisements that imply: in order to be happy and productive, consumers must have the latest device. The Kenyan M-PESA system proves otherwise.

Watch the 60 Minutes segment, "The Future of Money" or read the transcript. What are your opinions of M-PESA? Of banking deserts?

You've Got Email Trackers: A Tool Marketers Use To Spy On Consumers

The New York Times told the story of an executive who received a call at 10:30 pm on his smartphone from a marketer, minutes after opening an e-mail message from the same marketer. Coincidence? The executive didn't think so, and after some investigation found that the marketer had planted a tracking mechanism in the e-mail message.

This marketer took e-mail marketing to the creepy zone. The marketer arrogantly assumed the executive, a) wouldn't mind the tracking and privacy invasion; and b) was agreeable to receiving a late-night phone call. Inappropriate. If the executive was driving his car, the late-night call could have created a distracted driving risk. Dangerous.

This marketer isn't alone. According to The New York Times:

"The trackers are traditionally offered by email marketing services like GetResponse and MailChimp. They have a legitimate use: to help commercial entities send messages tailored for specific types of customers. The New York Times, too, uses email trackers in its newsletters. The Electronic Frontier Foundation, a nonprofit that focuses on digital rights, estimates that practically every marketing email now contains some form of a tracker."

The e-mail tracking is possible because most users view HTML e-mail messages. One e-mail vendor's website home page highlights the industry's position:

Image of Sidekick home page. Click to view larger version.

Marketers want to know when, where, what device you use, and what link(s) you click on with their e-mails and advertisements. Yes, marketers should be able to evaluate their e-mail and marketing programs. At the same time, consumers have valid needs, often including privacy and the desire not to be tracked.

According to Pew Research, consumers perform a variety of tasks to thwart online tracking and data collection: delete browser cookies or browser history (59 percent), refuse to provide personal information irrelevant to the transaction (57 percent), set their browser to disable or turn off browser cookies (34 percent), and more. 86% of internet users have taken steps online to remove or mask their digital footprints. Plus, the growth in usage of ad-blockers by consumers highlights the desire not to be tracked (since many advertising networks contain tracking mechanisms):

"Between 15 to 17% of the U.S. population reportedly use ad blockers, and the number is double that for millennials. The numbers are even higher in Europe, and up to 80-90% in the case of specialty tech and gaming sites."

So, balance and respect are key. If marketers and advertisers are going to plant trackers in e-mail messages, then be honest and transparent: say so. Notify consumers. Provide opt-in mechanisms for consumers that don't mind the tracking.

Don't be that creepy marketer.

Will marketers act with respect and not go to the creepy, dark side? History suggests otherwise, given the litany of covert technologies marketers and advertisers have used to track consumers online: browser cookies, zombie cookies, zombie e-tags, Flash cookies to regenerate browser cookies users have deleted, super cookiescanvas finger-printing, and more recently cross-device tracking.

Aware consumers realize that surveillance isn't performed only by government spy agencies. Private-sector corporate marketers and advertisers do it, too. The New York Times article discussed one of the e-mail trackers used:

"... MailTrack, which is a plug-in for Google’s Chrome browser that can quickly insert a hidden tracking pixel into a message..."

Unfortunately, both the good guys and bad guys (e.g., spammers, phishers) use e-mail trackers. Experts advise consumers to expect trackers planted in messages, and:

"A basic method for thwarting some email trackers involves disabling emails from automatically loading images, including invisible tracking pixels. But that doesn’t defeat all trackers, which are also hiding in other places like fonts and web links."

Ugly Email and Trackbuster, are tools consumers can use to detect trackers embedded in e-mail messages. The former is a Gmail plug-in.

What are your opinions of e-mail trackers? What software do you use to detect e-mail trackers?

[Editor's Note: an earlier version of this post linked the "cross-device tracking" text to a CBS News article. That link was updated to a more descriptive article at Ars Technica.]

Federal Prosecutors Pursue Criminal Charges Against Banking Executives

Department of Justice logo Reuters news service reported yesterday that federal prosecutors are pursuing criminal charges against executives at two banks for allegedly marketing mortgage-backed securities loaded with faulty loans after warnings by coworkers. If so, this would be the first cases of criminal charges against bankers.

Citing an article in the Wall Street Journal, Reuters reported possible criminal investigations at both JPMorgan Chase & Company (JPMorgan), and at the Royal Bank of Scotland (RBS):

"Prosecutors are scrutinizing a $2.2 billion deal that repackaged home mortgages into bonds in 2007 at RBS and two people who worked on a different residential-mortgage deal at JPMorgan, the Journal said. JPMorgan, RBS and Department of Justice declined to comment. JPMorgan said in a filing in November that it was responding to an investigation by the DoJ's criminal division.

It would seem that the news reports in May 2015 covered in this blog were largely accurate. At that time, news reports mentioned possible charges against five banks. Also in May, a federal court ruled that the Japanese bank Nomura Holdings and the Royal Bank of Scotland had misled Fannie Mae and Freddie Mac while selling them mortgage bonds that contained errors and misrepresentations.

J.P.Morgan logo JPMorgan has a colorful history, part of which is worth reviewing. In January 2015, it was one of four banks that settled illegal foreclosure charges with the Massachusetts Attorney General with a $2.7 million payment. In November 2014, both RBS and JPMorgan were part of a group of banks that paid $4.2 billion in fines to U.S., U.K., and Swiss regulators for rigging the foreign exchange, or FX, market. In December 2013, JPMorgan paid $515.4 million to the Federal Deposit Insurance Company (FDIC), $300 million to the California Attorney General, and $13 billion with the U.S. Justice Department to settle charges about the misrepresentation of offering documents for residential mortgage-backed securities (RMBS).

December 2013 was a big month. JPMorgan Chase announced a data breach that affected half a million prepaid card customers. U.S. taxpayers also learned that month that much of the huge fines JPMorgan paid were tax-deductible and reduced the bank's tax payments. in September 2013, the Consumer Financial Protection Bureau (CFPB) ordered both Chase Bank USA, N.A. and JPMorgan Chase Bank, N.A. to refund about $309 million to more than 2.1 million customers for illegal credit card practices, where customers were enrolled in credit monitoring services without their authorization and charged for services not delivered.

The Empire Strikes Back: Binding Arbitration Supporters Ramp Up Their Attacks

Image from The Empire Strikes Back film

Logo for Consumer Financial Protection Bureau Last month, the Consumer Financial Protection Bureau (CFPB) announced a proposal to ban arbitration clauses which many companies use to prevent consumers from joining class-action lawsuits. Many companies in several industries have inserted these "binding arbitration" clauses into their terms of service and agreements with consumers. The Public Citizen website lists the banks, retail stores, entertainment, online shopping, telecommunications, consumer electronics, software, nursing homes, and health care companies that include binding arbitration clauses in their contracts with customers.

Readers of this blog are familiar with the problem. The clauses are definitely pro-business and anti-consumer. They remove consumers' freedom or right to sue, prevent consumers from using the courts to resolve disputes, include many fees, prevent consumers from joining class-action lawsuits, and force consumers to travel hundreds or thousands of miles to a location of the company's choosing. Often, the arbitrator already has an existing relationship with the company, which means the playing field is heavily tilted against consumers.

To use an analogy from a popular science-fiction film, the empire is striking back. Arbitration supporters are attacking both the CFPB and others to preserve arbitration clauses. The New York Times reported:

"A television ad during the Republican presidential debate last Tuesday depicted pale bureaucrats rubber-stamping the word “DENIED” on the files of frustrated Americans, beneath a red banner of Senator Elizabeth Warren evoking a Communist apparatchik. The ad attacks the Consumer Financial Protection Bureau, a federal agency created with Ms. Warren’s strong backing after the 2008 mortgage crisis. What the ad did not say: Its sponsor wants to rein in the agency in part because of its efforts to restrict arbitration — the widespread practice in corporate America of requiring customers and employees to resolve disputes not in the courts, but in private proceedings with neither judge nor jury. In fact, arbitration is one of the reasons the ad’s sponsor, American Action Network, wanted to blast the agency with the $500,000 campaign, the group said.

Why the attack on the CFPB:

"Arbitration has remained largely untouchable because of a pair of Supreme Court rulings in 2011 and 2013 that cleared the way for the use of class-action bans in contracts. With the current Supreme Court’s having now twice enshrined the wide use of arbitration, many [binding arbitration] opponents have pinned their hopes on the consumer agency’s proposed rule."

There has been activity by both arbitration supporters and opponents. The supporters of binding arbitration also include:

"... the U.S. Chamber of Commerce, the most powerful business lobby in the country, started a new effort to block the Consumer Financial Protection Bureau by lobbying lawmakers to attach a rider to the federal budget bill that would force the regulator to conduct a new study before issuing any rule, according to people with direct knowledge of the strategy..."

Some of the opponents:

"... On Wednesday, the Justice Department issued a proposal to protect military service members from arbitration requirements. Earlier this month, Senator Al Franken, Democrat of Minnesota and a longtime opponent of arbitration, renewed his push for Congress to pass a bill he introduced this year that would prevent companies from requiring employees to go to arbitration... San Francisco’s city attorney, Dennis Herrera, sued American Express this month over what he claimed were “illegal and anti-competitive rules, policies and practices.” The lawsuit, filed in Superior Court, will probably help small businesses whose contracts with the credit card company prevented them from filing a class-action lawsuit... In Chicago, Alderman Edward M. Burke said he planned to introduce a bill this week that would prevent the city from doing business with companies that push employees and customers out of court..."

Consumers should have the freedom to use the courts; not be forced to use private arbitrators when there are disputes with their favorite products and services. Binding arbitration supporters will claim that consumers have a choice; consumers can simply not do business with companies that use these clauses. Huh? Living under a rock is not an option when all companies in an industry use binding arbitration clauses. There is no real choice for consumers. Consumers need and demand the freedom to use courts and not be forced to a private arbitrator.

What are your opinions of binding arbitration clauses? Of the politic ad? Of the efforts by arbitration opponents?

The CFPB Helps Consumers

The Consumer Financial Protection Bureau (CFPB) helps consumers in many ways. To learn more, read:

Comcast Expands Regional Tests With Usage Based Pricing For Internet Access

Comcast logo Your monthly Internet bill could get a lot higher. Since many consumers have cancelled cable TV and shifted their television usage to streaming, Comcast is exploring alternative pricing for Internet access. The ABC Network affiliate in Boston, WCVB-TV, explained why Comcast tests usage-based pricing for Internet access:

"... the company lost 48,000 cable customers in its just-reported third quarter while adding 320,000 Internet customers. Revenue rose 8.3 percent to $18.7 billion in the July-September period, while net income dropped 23 percent to $2 billion because of a tax gain from last year."

Some of the regional Internet access pricing Comcast is testing:

"[In August 2012], it capped monthly data use for Nashville, Tennessee, customers at 300 GB; going over the limit cost $10 for every 50 GB. The company launched a similar plan in Tucson, Arizona, that October - you got 300 GB for a base plan, 600 GB if you signed up for a faster and more expensive connection.By December 2013, Comcast had rolled out the Nashville system to Atlanta and a handful of smaller markets, many in the South. It also offered a slow Internet plan of 3 megabits per second that gave you a $5 credit if you used 5GB or less each month, and charged you $1 for each gigabyte of data over 5 GB. This month, Comcast added a tweak as it expanded the cap into Florida: Customers can now pay an additional $30 a month for unlimited data. (In Atlanta, it's $35 a month.) At this point, roughly 12 percent of Comcast territory is subject to "usage-based pricing..."

In 2014, Comcast switched the wireless routers of 50,000 Houston-area XFINITY WiFi home users to public WiFi hotspots. Earlier this year, the company attempted to buy Time Warner Cable. Comcast and other large corporate Internet service providers have both lobbied against net neutrality, and lobbied for local laws in 19 states that limit competition by preventing cities and towns from forming their own municipal or community-run broadband Internet providers. So, they are against regulation except when it prevents cmpetition; all to keep prices high.

The Internet access data caps seems targeted at consumers who stream television and cable shows. In many cities and towns, Comcast is the only high-speed Internet service provider, so there are no competitive pressures to keep prices low.

What are your opinions of data caps on Internet usage?