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Until we see significant revisions in earnings as a direct result of trade tensions, it will remain so. Display a map for their orientation.
Usually, however, the buyer gains more than the domestic seller loses. Except in cases in which the costs of production do not include such social costs as pollution, the world is better off when countries import products that are produced more efficiently in other countries. Those who perceive themselves to be affected adversely by foreign competition have long opposed international trade. Macaulay was observing the practical problems governments face in deciding whether to embrace the concept: Why countries trade In one of the most important concepts in economics, Ricardo observed that trade was driven by comparative rather than absolute costs of producing a good.
One country may be more productive than others in all goods, in the sense that it can produce any good using fewer inputs such as capital and labor than other countries require to produce the same good.
Comparative advantage Even a country that is more efficient has absolute advantage in everything it makes would benefit from trade. One hour of labor can produce either three kilograms of steel or two shirts. One hour of labor can produce either one kilogram of steel or one shirt.
Country A is more efficient in both products. Now suppose Country B offers to sell Country A two shirts in exchange for 2. To produce these additional two shirts, Country B diverts two hours of work from producing two kilograms steel. Country A diverts one hour of work from producing two shirts.
It uses that hour of work to instead produce three additional kilograms of steel. Overall, the same number of shirts is produced: Country A produces two fewer shirts, but Country B produces two additional shirts.
However, more steel is now produced than before: Country A produces three additional kilograms of steel, while Country B reduces its steel output by two kilograms. The extra kilogram of steel is a measure of the gains from trade. Though a country may be twice as productive as its trading partners in making clothing, if it is three times as productive in making steel or building airplanes, it will benefit from making and exporting these products and importing clothes.
Its partner will gain by exporting clothes—in which it has a comparative but not absolute advantage—in exchange for these other products see box. The notion of comparative advantage also extends beyond physical goods to trade in services—such as writing computer code or providing financial products.
Because of comparative advantage, trade raises the living standards of both countries. Differences in comparative advantage may arise for several reasons. In the early 20th century, Swedish economists Eli Heckscher and Bertil Ohlin identified the role of labor and capital, so-called factor endowments, as a determinant of advantage. Others in the market are not privy to the trade, although some brokered markets post execution prices and the size of the trade after the fact.
But not everyone has access to the broker screens and not everyone in the market can trade at that price. Although the bilateral negotiation process is sometimes automated, the trading arrangement is not considered an exchange because it is not open to all participants equally.
There are essentially two dimensions to OTC markets. In the customer market, bilateral trading occurs between dealers and their customers, such as individuals or hedge funds. In the interdealer market, dealers quote prices to each other and can quickly lay off to other dealers some of the risk they incur in trading with customers, such as acquiring a bigger position than they want.
Dealers can have direct phone lines to other dealers so that a trader can call up a dealer for a quote, hang up and call another dealer and then another, surveying several dealers in a few seconds. An investor can make multiple calls to the dealers with which they have established a trading relationship to get a view of the market on the customer side.
But customers cannot penetrate the market among dealers. Interdealer segments Some OTC markets, and especially their interdealer market segments, have interdealer brokers that help market participants get a deeper view of the market. The dealers send quotes to the broker who, in effect, broadcasts the information by telephone. The bulletin boards show bid, ask, and, sometimes, execution prices. The broker screens are normally not available to end-customers, who, as a result, are usually not fully informed of changes in prices and the bid-ask spread in the interdealer market.
Dealers can sometimes trade through the screen or over the electronic system. Some interdealer trading platforms allow automated algorithmic rule-based trading like that of the electronic exchanges. Otherwise the screens are merely informative, and the dealer must trade through the broker or call other dealers directly to execute a trade.
Advances in electronic trading platforms have changed the trading process in many OTC markets, and this has sometimes blurred the distinction between traditional OTC markets and exchanges. In some cases, an electronic brokering platform allows dealers and some nondealers to submit quotes directly to and execute trades directly through an electronic system.
This replicates the multilateral trading that is the hallmark of an exchange—but only for direct participants. However dealers resist the participation of nondealers and accuse nondealers of taking liquidity without exposing themselves to the risks of providing liquidity.
Others criticize dealers for trying to prevent competition that would compress bid-ask spreads in the market.
Unlike an exchange, in which every participant has access, these electronic arrangements can treat participants differently based on, say, their size or credit rating. Moreover clearing and settlements of trades are still left to the buyer and seller, unlike in exchange transactions, where trades are matched up and guaranteed by the exchange. As one would expect, residents living in areas closest to downtown Milwaukee have the highest probability of shopping downtown.
Return to top Defining Trade Areas using Actual Customer Data Trade areas based on actual customer data have a number of distinct advantages. Combining actual customer addresses or zip codes with GIS allows you to uncover relationships and perform calculations unavailable with tabular data.
A GIS can visually display where customers are coming from, show how customer concentrations are related over an area and perform advanced distance-based calculations. You can collect address or zip code data using a variety of methods and sources. However, regardless of how the data is obtained, this method offers a number of advantages, including: Collecting information from customers allows the trade area to be based on real business data, instead of created from estimates.
Comparing the trade area maps of different businesses can identify opportunities to increase market size and penetration. For instance, the trade areas for businesses that primarily sell convenience items can be compared with each other to identify variation. These differences could indicate potential market expansion opportunities for some of the businesses. The same can be done for comparison shopping businesses. Trade areas for different market segments can be compared. Businesses serving residents can be compared to the origins or home address of employees at a major employer.
Furthermore, addresses or zip codes are ideal for tracking the origins of tourists. While using customer addresses or zip codes to analyze a trade area has the ability to capture trade area variability, an appropriate sample of customer lists from participating businesses must be incorporated.
For instance, stores that serve both convenience and destination shopping segments are necessary to understand the local market. Businesses that serve tourists must be incorporated into your analysis to examine the tourist market segment. Employee lists from major employers are necessary to explore the daytime population market segment. While zip codes can be used, knowing the street address will allow for a more accurate trade area definition.
After mapping each address, another GIS technique can be used to define rings based on the percentage of overall customers.
Furthermore, these customer penetration polygons help account for the store trade area in the context of demographics, travel barriers and other market characteristics. As an example, a GIS could draw a customer penetration polygon based on a pre-determined customer percentage e. This polygon could then be used as the trade area boundary for a business. Using actual data, the example map of Customer Origins by Street Address below shows a trade area definition example based on customer addresses.
The map shows customer origins for a store in Milwaukee with sample customer penetration polygons of 25, 50 and 75 percent. Trade Area Based on Customer Zip Codes While customer street addresses are advantageous, zip codes are a viable alternative. Although not as precise in pinpointing customer origins as street addresses, zip codes are easier to collect and work well in rural areas where geocoding accuracy often diminishes.
You can categorize customer zip codes by the percentage of customers patronizing a business district originating from each zip code. These percentages can then be mapped to show the relative origins of customers.
Doing so allows you to examine relationships among customers areas of high and low percentage, directional nature of customers, contiguous vs. The example of customer origins by zip code map below shows an example of a trade area defined for Tomah, Wisconsin.
Notice how the customer origins are biased toward the east due to proximity to a major highway and the presence of the similar-sized community, Sparta, to the west. These are the types of relationships that would not be readily apparent in a table of customer zip codes.
As noted, you can collect customer zip codes in a variety of ways. Some businesses, such as hotels and grocery stores already collect this information for their daily operations. Often, zip code collection can be built into point-of-sale machines cash registers. If this method is unavailable, a trade area definition data collection sheet, such as the one in the exhibit below, can be used to record zip codes by hand. As clerks check out customers, they can enter their zip codes on the sheet.
While it is more labor intensive, the trade area definition sheet also offers the ability to recorded additional information with the zip code such as date, time, gender, age range, and amount of sale. The spreadsheet allows categorizing customers by the number and percentage of people originating in each zip code. The zip code percentages can then be grouped together to construct a trade area. Most often, the trade area is defined as those with zip codes that comprise about 75 percent of total customers.
If you are creating both convenience and destination trade areas, you will need to create two separate tables. Return to top Appendix: Trade Areas Representing Non-Local Customers Generally, local residents provide a majority of sales in a community since most shop in town or in the region year-round.
However, some communities have important customer segments that do not live locally, such as day-time employees, seasonal residents, and tourists. We focus on tourists in this appendix, but techniques are useful for analyzing all types of non-local resident customers.
Tourist Clustering Analysis Defining a trade area for tourists poses special challenges because tourist origins can be widely distributed and a single trade area does not fully represent where these customers are coming from.
Instead, tourists can be clustered into multiple trade areas to better represent the geographic pockets where they are concentrated. Tourist Profiling and Prospecting By mapping the origins of your tourists, you can also analyze the demographics of their home neighborhoods as a basis for attracting tourists from other neighborhoods with similar demographics.
Here again, you can use GIS software with existing customer address lists to generate a profile or their origins and demographics of their neighborhoods. GIS then uses this information to search prospect for potential new customers.
Geographic Profiling The profiling process begins by creating a spreadsheet with GIS software mapping customer addresses. While the map provides a general view, GIS can also be used to calculate the numbers of tourists by geographic area and distances that generate the most customers. See the following example: Typically, geographic profiling of tourists divides them by drive time and by geographic areas such as counties or metropolitan areas.
These calculations provide insight into how far customers are willing to travel, as well as the areas that produce the most customers. Demographic Profiling In addition to identifying the geographic origin of tourist customers, GIS also provides their demographic composition.
By knowing customer addresses, demographic information can be obtained about the neighborhoods where they live. This is because pre-defined neighborhoods, such as census block groups or zip codes, have robust demographic information associated with their boundaries. GIS can link neighborhood demographic information to each customer address.
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