1st bulletin of the economics society

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I s s u e 1 .

Romney’s plans- good enough for U.S.? Obama and Romney, who has a better plan for US economy?

Now that the election is over,

when the yard signs came down

and the television commercials

finally came off the air, Americans

are facing one of the most

anaemic economic recovery in the

history of the United States. It is

time for us to consider: who has a

better plan for American economy…

Continued on 4

About us

How we function and upcoming events

Page 2

The Era of patent wars

Large technology and software corporations have sued one another of infringing patents.

Page 3

Manchester United Manchester United has once again become the most valuable football team

Page 6

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Economics Society Bulletin Issue 1.

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The Need for Patent Wars

Smartphones have similar

features as compared to one

another. This makes them close

substitutes, which are goods for

which an increase in demand

leads to a fall in demand for

another. The closeness of these

substitutes can be represented

by cross elasticity of demand,

which signifies the

responsiveness of the demand of

a good to the price of another

good.

Take iPhone and Samsung

Galaxy SIII phone as an example.

A rise in the price of iPhones will

lead to a fall in the quantity

demanded for it, and customers

will turn to SIIIs. As a result,

there will be a large increase in

the demand for SIIIs.

The companies should be well

aware of the actions of each

other, as the increase in sales of

one product can severely harm

that of the other.

Therefore, these companies must

take action to increase their market shares.

What are patents?

A patent is a set of exclusive

rights granted by the government

to an inventor to be a monopoly.

It is the reason why different

smartphone companies are

claiming that their competitors

are illegally selling products that

have infringed patent rights. A

successful case is Apple’s suit

against Samsung claiming that

Samsung’s Galaxy Tab 10.1 is a

knockoff of iPad 2. As a result,

Samsung can’t sell this product

in Germany.

The Era of Patent Wars

5f Bernice So , 5F Jeff Cheong

However, are patents really

that good for companies? Not only

do patents protect intellectual

property, but also increase

monopoly power for companies. On

the other side of the coin, patents

are actually costly. Analysts said

that these patents are

tremendously overvalued.

Moreover, the costs further rocket

up when lawsuits are involved. In

the US, it is estimated that it

requires USD 2.5 million for each

company for a complete defense in a

patent infringement lawsuit.

Conclusion

Analysts criticize these companies

that all those money should be used

on research and development of

products instead of the endless

lawsuits. Indeed, the pricey patent

wars may discourage innovation.

‘Are patents really that good for companies? … On the other side of the coin, patents are actually costly.’

Introduction

Welcome to the

new era of

competition characterized by

patent wars.

Nowadays, patent

wars have become a global phenomenon.

Large technology and software corporations

have sued one another of infringing patents.

In particular, the ongoing patent battles

that are engulfing the

mobile industry.

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Romney’s Plans- Good Enough for U.S.? Does Romney have a better plan for U.S.?

4B Louis Cheng

Now that the election is over, when the yard

signs came down and the television commercials

finally came off the air, Americans are facing one of

the most anaemic economic recovery in the history

of the United States. It is time for us to reflect, who

has a better plan for American economy?

Energy Dependence

Firstly, Mitt Romney proposed making North

America energy independent by 2020. To do that,

he proposed increasing reliance on domestic energy

resources, by eliminating regulations on the coal

industry, and approving the keystone XL pipeline

project. Here, we would like to single out the widely

disputed keystone XL pipeline project, which the

Obama administration doesn’t fully support, and we

will demonstrate the immense economic benefits

brought about by this project.

The Keystone Pipeline System is a pipeline system

to transport crude oil and diluted bitumen from

the Athabasca oil sands region in

northeastern Alberta, Canada to multiple

destinations in the United States. Keystone XL

pipeline, along with the Gulf Coast Project, are the

proposed pipeline expansion segments. After the

Keystone XL pipeline segments are completed,

American crude oil would enter the XL pipelines at

Baker, Montana and Cushing, Oklahoma.

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Investing in Canadian oil is an economic win-win for

both Canada and the United States. According to a

2011 study by the Canadian Energy Research

Institute (CERI), new oil sands investments are

expected to create 444,000 new U.S. jobs and

generate $521 billion in U.S. government revenues

by 2035. The Keystone XL Pipeline construction

alone could create 20,000 U.S. jobs. And for every

two jobs supported in Canada, one will be

supported in the U.S. These are well-paying jobs for

hardworking Americans, ranging from

manufacturing steel for the pipeline and developing

advanced leak-monitoring-and-detection systems to

electrical work, construction and welding. In fact,

nearly 1,000 companies from 47 states are in one

way or another involved in developing Canada’s oil

sands.

Champion Small businesses

The next point we would like to investigate is the

“Champion small businesses’’.

In the last four years, in response to the economic

recession, the Obama administration chose to

emphasize on costly, short-term fixes such as

ineffective stimulus programmes.

On the other hand, the former Governor of

Massachusetts proposes reducing taxes on job

creation through individual and corporate tax

reform. This would fundamentally change the

direction of federal policies to increase GDP and job

creation currently and for many years to come. The

governor's plan puts growth and recovery first. For

example, the Romney plan would reduce individual

marginal income tax rates across the board by

20%, while keeping current low tax rates on

dividends and capital gains. The governor would

also reduce the corporate income tax rate—the

highest in the world—to 25%. In addition, he would

broaden the tax base to ensure that tax reform is

revenue-neutral. Lowering the tax rate can increase

the job creation as companies do not have to pay

the heavy financial burden. Hence, they have more

capital to employ more labour, thus creating more

jobs.

Even though there was clearly a winner in the Nov 6 election, the path America has been and will be taking in the next four

years is clouded with economic and social uncertainties. With the fiscal cliff issue looming ahead, it is time for America to truly reconsider her plans for her economy.

Conclusion

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Economists made a normative and positive

statement respectively that Americans do not

know much about English football and most

of them are not interested in this sport. Also

the Glazers owe a lot of money, which may

drive potential investors away, meaning

Manchester United may even do worse.

Public Limited Company

After Manchester United had been listed in

the US stock market, they become a public

limited company instead of a private limited

company. Private limited companies cannot

invite public subscription for its shares but a

public limited company can do so. There is

no upper limit for the number of shareholders

in a public limited company. On the other

hand, shares of private limited companies

cannot be transferred freely. The above are

all advantages of a public limited company,

however a drawback is that public limited

companies must submit audited annual

financial accounts while a private limited

company can just disclose its financial

accounts to its shareholders.

‘Although Manchester United is one of the best teams …

economists do not think that the team’s performance in the stock market will

be as good as its performance on the pitch.’

Valued at USD 2.24 billion by Forbes

Magazine in USA, being one of the most

supported football teams in the world

Manchester United has once again become

the most valuable football team.

Recently, they were listed in the US stock

market as the owner of Manchester United –

the Glazers wanted more money to buy

players for the club but have ben burdened

with a huge debt of about 423 million

pounds.

Performance in the Market

Although Manchester United is one of the

best teams in the English Premier League,

economists do not think that the team’s

performance in the stock market will be as

good as its performance on the pitch. This is

because not many sports team are listed in

the US stock market, rare examples includes

Boston Celtics.

4A Justin Chong

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How to raise capital?

In order to raise capital,

limited companies issue

shares and bonds. In this

case, Manchester United has

issued shares and went public

in the US stock market.

Evaluation

The advantages of

buying shares include a

relatively higher return when

the company performs well

and earns huge profits.

However, buying shares also

have disadvantages as it is more risky with unstable return compared to bonds. If the

company suffers loss or earns less profit, there will be relatively lower return. Also, when

the company liquidates, shareholders have a lower priority to regain their capital. In

Manchester United’s point of view, issuing shares is good as they have no interest burden

and no redemption obligations. Also, it would be easier for them to have more bank loans

with a lower debt-to-equity ratio. However, issuing shares maybe bad for them as new

shareholders may influence the company’s decision. There is a higher risk that the Club

maybe taken over by other investors and control of existing shareholders will be weakened.

Conclusion

Buying shares in the stock market is actually a risky move so investors should think

carefully about the company’s prospect and whether it has a higher chance to earn profits

or lose money before entering in the stock market, do not just buy a stock blindly because

you are fond of the team or the company. “THINK BEFORE YOU ACT!”

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