Through a post on the TUANZ blog I happened on a 2011 report by Venture Consulting for 2degrees Mobile entitled “Economic Study of the Benefits to the New Zealand Economy of New Competition in the New Zealand Mobile Market“.

The total estimated benefits from 2007 to 2021 are given in the report as:

Direct investment: $5.3 billion
Indirect investment: $3.4 billion
Competition dividend: $1.4 billion

The first two items correspond to expenditure by 2degrees and its suppliers on “capital and reinvested revenues”. These are costs, not benefits. If 2degrees did not exist, these resources could have been used for something else. We shouldn’t count them as a “benefit of new competition”.

The “competition dividend” is better — it reflects the estimated effects of lower prices in the mobile market as a result of increased competition. However much of the $1.4 billion calculated by Venture is a transfer to consumers from producers and not a net welfare benefit. The true net welfare benefit depends on how much usage (quantities) in the mobile market changed as a result of lower prices caused by greater competition. The fact that consumers pay lower prices for the existing level of usage doesn’t generate a net welfare benefit.

Doing this analysis the right way would not give a Big Number, but it would be a robust, meaningful number. The huge numbers estimated by Venture don’t tell us anything about the true benefits of competition.

Don’t get me wrong — I’m all for competition and I think 2degrees has had a significant effect on mobile market competition in New Zealand. I just wish they had analysed it properly.

New Zealand’s “digital dividend” spectrum auction will happen later this year. This is the auction for rights to spectrum freed up by switching TV from analogue to digital technology. The spectrum (around 700 MHz) is particularly useful for mobile broadband services and so is expected to be quite valuable.

Today the government released a discussion document giving some proposed details of the auction. They plan to use a type of “combinatorial clock” auction, which sounds fancy but is a fairly standard format for spectrum auctions. However the most crucial detail, the reserve price, has not yet been announced.

Australia found out recently the perils of setting reserve prices. They set their 700 MHz reserve price quite high, causing one major mobile network (Vodafone) to withdraw from the bidding. In the end, some spectrum was unsold.

This is somewhat tragic, given that spectrum is a free resource provided by nature. Unlike other natural resources, spectrum can’t be stored — if you are not using it to generate some value right now then that potential value is lost forever. It’s not like oil that you can leave in the ground to extract later.

So to generate the most benefits for society, the most important thing is that spectrum ends up in the hands of whoever can make the best use of it. The price they pay doesn’t actually matter, as long as the allocation is efficient. Unused spectrum is not a good allocation.

But governments want to make money from these auctions too, hence the desire to set a reserve price. A reserve price can increase the selling price in an auction if the reserve price is below the highest valuation of all bidders but above the second-highest valuation. In that case the selling price increases from the second-highest valuation to the reserve price.

The danger is if the reserve price is too high, it will be above everyone’s valuation and there will be no sale. Since the government doesn’t know exactly what bidders are willing to pay, setting the reserve price is a bit of a gamble.

If the aim is maximising revenue, it’s most helpful to set a reserve price when the auction has relatively few bidders. In that case it’s more likely that there will be a gap between the highest and second-highest valuations, and the reserve price will come in to play. The likely number of serious bidders for 700 MHz spectrum in New Zealand can be counted on one hand.

All up, setting the reserve price is a tricky task and no doubt NZ government officials are thinking hard about it. There are political risks both ways — set the reserve price too high and spectrum will be unsold, but set it too low and the government might not earn much revenue.

The latest Statistics New Zealand survey of household IT use reports that more than half of New Zealand households made online purchases in the last 12 months.

For those unfamiliar with retail shopping in New Zealand, the experience is one of lack of variety and high prices, and is dominated by a few large chains. We don’t have IKEA or anything like UNI-QLO. Topshop is sold for premium prices as an upmarket brand, whereas in the UK it’s low-end.

Here’s a typical example — we’re looking for new curtains for our house. The fabric we like retails for 180 NZD per metre (including 15% GST). Online we find a UK retailer selling the exactly the same fabric for 30 GBP per metre (including 20% VAT), which is about 60 NZD at current exchange rates. Shipping costs will not be anywhere near this difference, and we will have to pay some import taxes and GST, but that will be about the same as the UK VAT which we will not have to pay.

In many other cases, retailers in New Zealand simply do not stock a wide variety of products and online shopping is the only way to go. Helpfully, New Zealand Post recently launched a relatively inexpensive US mail-forwarding service to make it easier to buy from US retailers.

The main economic question is whether this annoying situation is due to lack of competition among retailers and high margins, or genuinely high fixed costs that make it unprofitable to stock a wide variety of products at reasonable prices (eg spoilage costs). I have no data but suspect a combination of both factors in different parts of the retail sector. Hopefully the Productivity Commission’s services sector inquiry will shed some light.

In any case the question is rapidly becoming moot as New Zealanders take to online shopping and international shipping becomes more widely available and relatively cheap. This should force retailers to lift their game.

I made this chart today, it shows the inflation adjusted price for New Zealand international air transport since 1981, and the inflation adjusted price for jet fuel (data starts in 1990, originally in US dollars, converted to NZ dollars). Data are from Statistics New Zealand and the US Energy Information Administration.

The real price of air transport has continuously declined since the mid 1980s. On the other hand the jet fuel price, a very significant cost for airlines, has been quite volatile and has increased significantly since 1999.

A lot of things are behind this — increasing competition, new technology, economies of scale, clever pricing by airlines, new low-cost business models, state support for some foreign carriers, etc. In any case you certainly get a lot of bang for your buck when you buy an international flight!

The Auckland Unitary Plan sounds boring but it’s a very important document as it will set out the rules for what can and cannot be done with land in the recently created super city. Obviously making such a plan involves confronting loads of trade-offs and making high-level choices that will make some people better off and others worse off.

The Council introduces the Unitary Plan by saying that 1 million extra people are expected to live in Auckland over the next 30 years and we “need” to find ways to accommodate this growth. In reality the number of people living in Auckland is not fixed and will depend on all sorts of things, most notably the Unitary Plan itself. For example, the Plan will have a big effect on the price of houses and this will be a key consideration in people’s migration and reproduction decisions.

Instead it would be better to recognise that the Plan and debate around it are really about:

• How many people do we want to live in Auckland?
• How much will it cost to live here?
• What types of people do we want to live here, with what education, skills, wealth and family structure?

Some of these are more nasty and uncomfortable questions than simply trying to figure out where to put 1 million more people. But being honest about the nature of the issue will lead to better debate and better outcomes.

The Council also talk about accommodating growth while “protecting the things we value” and giving people more choices. This is attempting to portray growth as a win-win for everyone. That is unhelpful because it suggests that win-lose outcomes are bad, when in fact they are not if the winners win more than the losers lose. Again it would be better to explicitly recognise there will be some winners and some losers from this growth, and we are trying to find the policy that creates the most net wins once the losses have been subtracted.

This will be old hat to some, but I’ve just discovered Space Syntax and find it fascinating. Essentially this is a relatively scientific, analytical approach to urban planning, combining principles of economics and design.

Some economists tend to look down their noses a bit at town planners. This is because much of the planning process involves imposing seemingly arbitrary restrictions on markets and economic activity.

To some extent this is true, particularly where planning becomes politically driven. But as the Space Syntax research reveals, cities are platforms for economic and social trade, and the value of trade created depends on the design of the platform in ways that are not always obvious. Essentially this is a spatial optimisation problem, to maximise the value of trade through the allocation of activities in geographic space — concepts that economists are quite comfortable with.

Still there is the nagging question of why we don’t just leave it up to the market. Why do we need rules about who can do what and where? I think the main arguments in favour of planning rules are spillovers and coordination problems. One person’s actions affect others in positive and negative ways. In a perfect world, all these effects could be internalised through pricing and bargaining, but in reality transaction costs make that impossible. This is particularly true when the spillovers affect not just one’s immediate neighbours but those further away via the transport and other networks that cities provide.

So as a second-best solution we have planners whose job is to see the big picture and design these urban platforms to take account of all the spillovers and trade-offs. In theory at least!

Here is a slide show that explains more about the Space Syntax methodology and contains some very clever visualisations of how cities work.

Here’s the contents of my wallet right now:

• A Visa credit card
• A Visa debit card
• An EFTPOS/ATM card
• Two different supermarket loyalty cards
• A combined Air New Zealand Airpoints / Flybuys / Mastercard debit card
• An Air New Zealand Koru club membership card
• A garden centre loyalty card
• An Asia Miles frequent flyer card
• A Priority Club hotel loyalty card
• Two different video store membership cards
• A library card
• My driver’s license
• A paper (!!!) multi-trip bus ticket
• A paper (!!!) multi-trip ferry ticket
• An Auckland Transport “Hop” card for trains, which will also (eventually) replace the above two paper tickets
• A cafe loyalty card
• A restaurant discount card
• A small amount of cash

All of these cards hold tiny tiny tiny amounts of data. Some of them have magnetic stripes and a few have chips, but the amount of data that each card holds is minuscule compared to say, a smart phone. The EFTPOS/ATM card is redundant and I could use the Visa Debit card instead, but I prefer the old card because it has a magnetic stripe which is quicker to use than the chip cards. And the paper transport tickets will disappear soon. Nevertheless, I’m carrying around a huge amount of plastic and junk just to have these tiny amounts of data with me all the time.

Surely there is a better way, but getting there involves solving a lot of coordination problems and making standards, getting people to adopt standards, etc. Consumers would benefit, but producers perhaps not so much — given that everyone already carries a wallet, the marginal cost of carrying another card is not very high, so people carry them anyway. Still it seems strange that the cheapest solution is to produce pieces of plastic containing tiny amounts of data and physically distribute them to people.

I wanted to learn how to make and program iOS apps so I set myself the task of making the simplest possible useful app — a torch app. There are a gazillion torch apps in the App Store already, but most of them are not very well designed, so I tried to make a torch that does not suck. I wanted to make an app that is a little bit smart in terms of anticipating what the user needs.

Torch functionality is pretty simple, the app just turns the iPhone’s camera flash LED on or off to act as a torch. All of the free torch apps that I tried require you to push a button to turn the torch on, which seems silly — if you are opening your torch app then surely you want some light right now. So in my app the torch comes on immediately when you open the app, and turns off when you close the app. I also built in brightness adjustment of the torch if you have iOS 6.

But I figured a torch alone would probably be rejected by Apple because there are so many similar apps already. So I also added a night clock mode, where if your device is plugged in to a power source then it will show a clock on the screen and turn off the torch. The device will stay on in this mode, so you can leave it beside your bed at night. If you need to get up during the night, unplug the device and the torch comes back on. The screen brightness for the clock is set very low so it won’t disturb you.

If you need some more light during the night but not the full torch, you can tap the screen to increase the brightness of the clock (and tap again to turn it down). The brightness of these two modes of the clock is adjustable by sliding your finger up or down the screen.

So while it seems like a pretty simple app, there is actually a fair bit going on behind the scenes. I learned a lot from this process and have some other ideas for more complicated apps that I’ll try to work on next.

The app is called On | Off, reflecting its two basic states. I don’t believe in free apps, so it’s on sale for US 99c in the App Store. I made a little website for On | Off, or you can view it directly in the App Store here. Here’s a couple of screenshots:

‘Walkable’ cities, according to Wikipedia, are where “the built environment is friendly to the presence of people living, shopping, visiting, enjoying or spending time in an area.” Such cities are receiving a fair amount of press lately. Apparently, city centres are growing faster than presumably less walkable suburbs.

Walkability means access to amenities is convenient, and presumably relatively quick. It also means activities like shopping and going to work can be combined with exercise or just enjoying being outside in the fresh (?) air.

Time is a resource that everyone has in the same fixed quantity each day, and it cannot be bought directly. As the economy grows and people get richer, time becomes ever more valuable in relative terms. You can buy more of other resources, but not time. Being richer means the opportunity cost of time increases, as the things you can do with your fixed amount of time are nicer.

So products that ‘save’ time will always become more valuable. This doesn’t always mean doing the same thing in less time, it could also mean having a nicer experience in the same amount of time. For example getting some fresh air and exercise while you are doing your shopping.

In short, it’s probably not surprising that compact walkable cities are becoming more desirable as economies grow. Scarcity of time probably isn’t the only reason but it seems reasonable.

Interestingly this trend is probably not what urban planners and transport planners would have predicted 20 or 30 years ago when they were designing cities and highways. At that time, when real per-capita incomes were half or less than they are now, people were probably more willing to trade time for space and were willing to spend more time travelling. So there may be some conflict between the infrastructure that exists and what people apparently want.

Public transport is about moving people from A to B, but so much of providing a good service is about information.

Particularly for non-commute (ie irregular) trips, people need to know all sorts of things before they can travel and during travel. Which bus should I take? Which stop should I get on? Where should I get off? What point in the route are we at right now? How long will it take? How much will it cost? Do I need to change / transfer? How reliable is this service (what is my expected time of arrival)?

The importance of such information depends on the complexity of the public transport system. The more complex the system, the more information is needed, and the more difficult it will be to communicate to travellers. If there are lots of routes, operated by different operators, with different timetables and different fares, then much more information needs to be conveyed. A simple system will be more attractive to travellers simply because they can understand it more easily.

On the other hand, frequency can substitute for information. If you know there’s a train coming every 5 minutes, you don’t need to worry about the timetable. Connectivity can also compensate for complexity: if there are good connections between services then there are more possible routes to choose from, making information about routes less crucial. The Tokyo Metro is super complex, but high frequency and good connectivity means it’s still usable. In Auckland, the system is complex but frequency is low and connections are few, making information extremely important yet difficult to communicate. Fortunately this looks set to change.