Tag Archives: econoMAX

Cooperation rules in the Italian Province of Emilia-Romagna

On Radio New Zealand ‘Sunday Morning’ programme Chris Laidlaw spoke to economist Stefano Zamagni about the success of the the northern Italian province of Emilia-Romagna. The province is possibly best known as the birthplace of the slow food movement, a movement which symbolises the idea of quality over quantity. With a population of just over four and half million the province has one of the highest levels of GDP per capita in Italy and was recently ranked second with regard to the quality of life. Unemployment numbers are among the lowest in Europe and the gap between high and low income groups is much narrower than that of its neighbouring provinces. It also has the highest concentration of cooperative businesses in the world with the cooperative sector responsible for a quarter of the provinces GDP and unusually a large proportion of those cooperatives are worker cooperatives – businesses owned and managed by their employees?

The Emilia-Romagna Model
The region of Emilia-Romagna has a co-operative sector that employs approximately 600,000 people – this accounts for over 40 per cent of the businesses in the region. Furthermore there exist over 325,000 manufacturing enterprises which make it one of the most concentrated industrialised areas in the world. However, what is significant about these enterprises is that 90 per cent of them employ fewer than 50 workers. The region now has the highest GDP per capita, the lowest unemployment rate, and the highest output of research, innovation, and overall performance in the EU. Testament to this is Emilia-Romagna featuring in the top ten of Europe’s 122 economic regions. According to Stefano Zamagni (former economist at the University of Bologna) the success of Emilia-Romagna is due to “Economic Democracy”. In the 1970s a movement driven by academics and community activists sought to challenge the paradigm of the country’s highly corporatised private and public sectors and bring about a more democratic and accountable system for running the economy. A left-wing coalition government in the 1970s instigated a period of restructuring in which the new ruling government transferred the control of social services and economic development to the country’s 20 administrative regions. You can read a longer version of this post in the June edition of econoMAX

Game Theory: Penalties and the 2008 UEFA Champions League Final

In the recent edition of econoMAX (online magazine of Tutor2u) I wrote a piece on the game theory of penalty kicks in soccer. Below is an extract from it and an example of game theory in action from the 2008 UEFA Champions League Final between Manchester Utd and Chelsea.

As we approach the business end of the football season in Europe and with the potential impact of penalty kicks deciding matches, it might be appropriate to consider the relevance of game theory – economists hold in high regard the penalty kick as a real-life example of game theory. Technically the kicker and the goalkeeper play a zero-sum game – any gain for one player is exactly offset by the loss to the other side – plus one goal for me is minus one goal for you. The situation that kickers face in a penalty kick is a simultaneous-move game where they have three alternative strategies: shooting right, left, or centre. Similarly the goalkeeper also has three alternative strategies: dive to the right, dive to the left or remaining in the centre of the goal. In defining the sides of the goal researchers use the “natural side” of the kicker (which is the goalkeeper’s right, if the kicker is right-footed, and the goalkeeper’s left, if the kicker is left-footed) and the “opposite side”. Labeled like that, the strategies of both kicker and goalkeeper will be to choose the natural side of the kicker (NS), the centre (C) or the opposite side (OS).

From the data collected by Basque economist Ignacio Palacios-Huerta he calculated the proportion of successful penalty kicks. It shows the success rate of penalty takers when they went to their natural side and opposite side when the goalkeeper went his natural side and opposite side (see right). Notice that when the kicker went NS and goalkeeper OS the success rates was 95% – the remaining 5% missed the target. Similarly when the kicker went OS and goalkeeper went NS – 8% missed the target.

2008 UEFA Champions League final – Chelsea v Manchester Utd.

If you have read Soccernomics you will be well aware of the events that unfolded in this game. Ignacio had been recording how penalties were being taken and wrote an academic paper on strategies that players and goalkeepers employed. A mutal friend of Ignacio and Chelsea manager, Avram Grant, brought the two men together and subsequently Ignacio sent Grant some facts regarding Man Utd in particular about their goalkeeper Van der Sar. There were 4 main points:
1. Man Utd goalkeeper (Van der Sar) tended to dive to the kicker’s natural side (ie GK’s right for a right footed kicker)
2. Van der Sar tends to save penalties that are hit at mid-height
3. Man Utd midfielder Cristiano Ronaldo often stops in his run-up and if he does the ball is kicked towards the right hand side of the keeper. It was important that the Chelsea goalkeeper, Petr Cech, does not move early. When goalkeepers moved early Ronaldo always scored.
4. If you win the toss you take the first penalty. 60% of teams going first win the game.

Man Utd’s Rio Ferdinand won the toss and went first – not a good omen for Chelsea. Looking at the penalties and relating it to Ignacio’s research we see the following:

1. Ballack – OS – left. Van der Sar dives left – GOAL
2. Belletti – OS – left. Van der Sar dives right – GOAL
3. Lampard – OS – left. Van der Sar dives right – GOAL
4. Cole – NS – left. Van der Sar dives left (as advised by Ignacio ball hit hard and low) – GOAL
5. Terry – OS – left. Van der Sar dives right – NO GOAL – hit the post
6. Kalou – OS – left. Van der Sar dives right – GOAL

Up to this point all Chelsea right footed players had taken on the advice of Ignacio and hit to their opposite side – Van der Sar’s left.

Man Utd
3. Ronaldo – paused in his run-up. Petr Cech stayed upright for as long as possible and dives right – NO GOAL – saved.

Sudden death
It seemed that Chelsea’s strategy of going to Van der Sar’s left had been hatched by someone on the Utd bench. As Anelka prepared to take Chelsea’s 7th penalty Van der Sar pointed to the left corner. Now Anelka had a terrible dilemma. This was game theory in its rawest form. So Anelka knew that Van der Sar knew that Anelka knew that Van der Sar tended to dive right against right footers. Instead Anelka kicked right but it was at mid-height which Ignacio warned against. – Soccernomics Page 127

7. Anelka – NS – right. Van der Sar dives right – NO GOAL – saved

If Anelka had taken Ignacio’s advice would Chelsea have won? Below you can see the drama unfold on YouTube.

Competition for Boeing and Airbus

Robert Nutter wrote an informative piece in the Sept edition of econoMAX (online Economics magazine of Tutor2u) on the airline production duopoly. Duopoly is a form of oligopoly and exists in a market when two companies control nearly all the market share of a product or service. The $1.6 trillion market for passenger aircraft has been dominated by Airbus and Boeing for over 20 years with Airbus accounting for 47% of the market in 2009 and Boeing 43%. Thus whenever we fly with airlines such as Air New Zealand or JetSar the chances are we are being carried in one of a range of planes produced by these two firms such as the Airbus 320 or the Boeing 737.

These two aircraft manufacturers use non price competition as they battle for market share in the short haul and long haul passenger aircraft market. While price is obviously a factor for airlines purchasing their airliners they also look for increased fuel efficiency, lower emissions, low maintenance costs, reliability and design as key selling points. The high research and development and marketing costs would seem to suggest this is not a contestable market that will remain a duopoly. However there are increasing threats to the dominance of Airbus and Boeing, particularly in the area of the market dominated by the Airbus 320 and the Boeing 737. Embraer, the Brazilian manufacturer, the Russian aircraft manufacturers United Aircraft Company and Sukhoi as well as China’s Comac and Bombardier from Canada will probably challenge the big two in the year’s ahead forcing them to spend more on R&D than they previously planned.