An example of backward integration

Easily Integrate These Wall Street Journal Articles in Your Class

advertisement Special Student Rates! Your students are eligible for the lowest rates - 75% off! They'll receive full digital access on their laptops, smartphones and tablets, plus the print edition 6 days a week. They can subscribe at WSJ.com/studentoffer. Be sure to share this information with your students. THIS WEEK'S ARTICLES Google Profits Surge on Strong Ad Demand How Mobile Games Rake In Billions Telecoms Consider Fee Hikes, as Fierce Price War Plays Out Inside Verizon's Gamble on Digital Media Why There is No Science in Your Salary Google Profits Surge on Strong Ad Demand by: Jack Nicas Jul 29, 2016 Click here to view the full article on WSJ.com TOPICS: Advertising SUMMARY: Google parent Alphabet said quarterly profit soared 24%, the second internet giant in two days to report blockbuster earnings driven by consumers' rapid shift to mobile devices. CLASSROOM APPLICATION: Students can evaluate the effect of the rise in smartphones on Google's revenues from click ads. The increase in the use of smartphones has increased the demand for click ads, which in turn has increased Google's revenues from click ads. Instructors can emphasize the point that a new technology, smartphones, has increased the demand for a product, click advertising. QUESTIONS:  1. (Advanced) What is the effect of the rise of smartphones on internet use? What is the effect of the rise in internet use on click advertising? 2. (Introductory) Why are companies increasingly willing to advertise on smartphones? 3. (Advanced) Why has Google in particular benefited from the rise of smartphones? Reviewed By: James Dearden, Lehigh University How Mobile Games Rake In Billions by: Sarah E. Needleman Jul 29, 2016 Click here to view the full article on WSJ.com Click here to view the video on WSJ.com  TOPICS: Price Discrimination SUMMARY: Behind a pair of recent multibillion-dollar deals in the mobile videogame industry is an expertly crafted weapon: virtual goods sold inside apps for as little as 99 cents a pop. In-app purchases let players spend real money to bypass ads, acquire skills or grow powerful quickly. CLASSROOM APPLICATION: Students can evaluate the evolution of mechanisms within mobile videogames to increase the likelihood that players purchase in-game tools to improve the playing experience. One interesting class of mechanisms involves behavior-based price discrimination: "Data on players' behavior also are used to strategically tweak prices for virtual goods in real time." QUESTIONS:  1. (Introductory) Is the use of a countdown clock within a game a tool used by game developers to price discriminate? 2. (Advanced) What is "behavior-based price discrimination"? What are examples of behavior-based price discrimination noted in the article? 3. (Advanced) Evaluate the statement, "Developers have gotten savvier about giving players more free things to do to keep them hooked until they start spending." Does getting hooked on a game imply that the player's demand for continued and faster play is more price inelastic? Does the higher price inelasticity imply that the player is more willing to pay to play a game without imposed delays? Reviewed By: James Dearden, Lehigh University Telecoms Consider Fee Hikes, as Fierce Price War Plays Out by: Thomas Gryta Aug 01, 2006 Click here to view the full article on WSJ.com TOPICS: Competition, Pricing SUMMARY: Big U.S. wireless carriers have reported second-quarter results that suggest prices have stabilized, and some are even talking about possible increases. CLASSROOM APPLICATION: Students can evaluate factors that have causes wireless providers to contemplate price increases. In particular, students can examine whether the maturing of the wireless market leads firms to increase prices. In the analysis, if all subscribers of a particular plan offered by a firm, Verizon Wireless for example, pay the same price, then if Verizon lowers its price to attract new customers, it lowers its price for existing customers as well. Because the probability of attracting a customer that is new to the market could be greater than the probability of attracting a competitor's customer, Verizon may be more willing to lower its price to attract new customers. Therefore, as the number of new customers falls, the company may raise prices. QUESTIONS:  1. (Advanced) Why would wireless carriers set lower prices to attract new customers who have entered their market, and set higher prices in the competition to steal one another's customers? 2. (Advanced) In simple economic models with one product and one time period, does price equal revenue per unit sold? The article notes average revenue per user (per month). Why do wireless carriers use average revenue per user as a metric to measure their performance? Why do wireless carriers distinguish average revenue per user from plan prices? 3. (Introductory) Why would the coming new iPhone spark a fresh round of promotions? Reviewed By: James Dearden, Lehigh University Inside Verizon's Gamble on Digital Media  by: Ryan Knutson, Ben Fritz, and Mike Shields Aug 02, 2016 Click here to view the full article on WSJ.com TOPICS: Mergers, Vertical Integration SUMMARY: Verizon's purchase of Yahoo is the latest move by the telecom to expand into Hollywood and Silicon Valley. The plan is to own and distribute online content and use data collected from mobile phones to target advertising to tens of millions of users. CLASSROOM APPLICATION: Students can examine Verizon's rationale in acquiring Yahoo, and instructors can use this case as an example of vertical integration. QUESTIONS:  1. (Advanced) What is "vertical integration"? Is Verizon's acquisition of Yahoo an example of vertical integration? Is Verizon's move into online media an example of vertical integration? 2. (Advanced) How would Verizon generate revenue from distributing online content? 3. (Introductory) What is the effect of the increased competition for Hollywood content on the price of the content?