An Economic Analysis Of OBike’s Stationless Bike-sharing System And The US-China Trade War

oBike’s Stationless Bike-sharing System: Positive and Negative Externalities

1.

The oBike stationless system of bike sharing intends to provide the society a pollution free ride at any time through tracking them with the help of GPS (Global Positioning System).  Through this system, company expects that the society as well as economy will gain positive externalities (Iossa and Martimort 2015). Through this form of externality, a benefit is created that a third-party enjoys due to an economic transaction. This third party means any organisation, individual or property owner that can affected directly or indirectly with this process. In this situation, marginal social benefit remains high than the marginal private benefits. In this context, the government encourages producers to produce those products by large number from where positive externality can be generated (Möhlmeier, Rusinowska and Tanimura 2016). For this, the government also implies suitable policies or provides subsidy to producers for encouraging them for more production.

Figure 1: Positive externality

Source: (as created by author)

The company provides opportunity to passerby or any needy person to travel from one place to other with the help of oBike if they do not possess any bike themselves. They can find these bike anywhere of the city with the help of GPS and leave it anywhere as well. Hence, this system intends that customers will not experience any difficulties to go in a near-by station for hiring bike or leaving this in a particular area. Moreover, excessive use of these bikes without purchasing one can reduce the tendency of car use and this further can help to reduce the level of air pollution. This bike also provides physical fitness and consequently this can provide positive externalities from various aspects.

The oBike intends to create positive externalities though it creates negative externalities for society and economy as a whole. In a negative externality system, the third party suffer a lot and pay cost for the economic transaction (Wood and Sullivan 2015). This type of externalities occurs generally in case of property rights on resources or assets. In this situation, production cost for the negative externality generated companies increase, as marginal social cost (MSC) becomes higher than marginal private cost (MPC). As a result, the society bears higher price than it actually pays.

Figure 2: Negative externality

Source: (created by author)

People start to leave these bikes here and there after their use and this creates further serious problems for people as those bikes are parked or dumped in public places like park, or street and this can make serious accident (He, Lu and Berrens 2018). Moreover, some bikes are found in rivers or under the trees that can create further water or environment pollution. People also steal these bikes for removing GPS system and sell them in online site. Hence, this service indirectly has generated negative market for earning money. These all consequences create negative externalities, where common people become adversely affected without receiving any positive service.

The EPA has imposed new regulations along with fines of City of Melbourne to reduce this negative externality from environment. According to the new regulations, the EPA states oBike to clear all dumped as well as damaged bikes from specific areas (Grimes and Esaiasson 2014). This impact of regulations and government fine can be discussed with the help of a proper diagram.

Impact of New Regulations on oBike’s Stationless Bike-sharing System

Source: (created by author)

The diagram has represented the situation when government regulation along with fines is imposed. Due to negative externalities, marginal social costs becomes higher than marginal private costs and in this situation, welfare loss of the society becomes high (Leal, Conly, Henderson and Manns 2017). However, after imposition of such restrictions, marginal cost curves become comparatively low and in this situation, the amount of welfare loss will be reduced. Hence, from this situation, it can be said that, to reduce o-Bike’s negative externalities, it is essential to impose such fine and regulations so that any other people, company or others cannot receive any harmful impacts (Niesten and Lozano 2015). Moreover, through imposing such restrictions, the government has successfully forced oBike’s to clean the society by removing all of their bikes dumping in any part of the city.

To reduce or control negative externalities, the government of Australia and can impose various market-oriented policies. Market-based policy includes taxes or subsidies from which people can receive incentives to take proper decisions in order to change their behaviour. In this context, the government can impose subsidy so influence the company for taking proper steps to manage and reduce these negative externalities (Mills 2017). For instance, the government can provide subsidy to this oBike company stating that they need to reward people, who will take initiatives to park bikes in proper areas in a proper way. By receiving these incentives, people can be motivated to maintain these bikes properly, as they can be tracked by the company at the time of using their bike. For this, the government can motivate the specified company to improve its technological system through updating proper software, so that they can easily track people, who recently are using bikes or who has already used it.

Providing subsidy to oBike can be supported for its characteristic of positive externalities. The company has genuinely intended to reduce air pollution by replacing cars with this environment friendly bike. People can also be benefitted physically by riding this type of bike. However, due to the nature of people, the vision of oBike has remained unsuccessful. In this context, subsidy can be played a vital role, as it can reduce operating costs of this company. Hence, in this situation, the company can provide sufficient amount of incentives to people for influencing them to use these bikes carefully. After imposition of subsidy, marginal social costs go below the marginal private cost. The following diagram has represented this situation.

Source: (created by author)

In above figure, the government has imposed subsidy on government to highlight positive externalities and reduce negative one. In this situation, total output production will increase by Q1Q2 unit while market price reduces from P1 to P2. Hence, subsidy can indirectly transfer negative externality into positive one.

1.

Let assume that China exports final products along with intermediate inputs to USA and for this USA is importing country and China is an exporting one. Imposition of tariff has certain impact on USA and China, respectively that can be described with the help of following diagrams.

Market-based Policies for Addressing Negative Externalities of oBike’s Bike-sharing System

Source: (created by author)

Figure 5 represents tariff imposition on USA, which imports both final and intermediate goods from China. Under free trade, price of these products were P^FT in international market (Böhringer, Carbone and Rutherford 2018). However, after imposition of tariff, price of these products increase and become P^IM. In this situation, consumers, producers along with government and economic welfare have been affected. These are described below:

The consumer surplus in US has reduced by (A+B+C+E) while producer surplus has increased by A.  The amount of government revenue becomes (C+H), as after imposition of tariff, the government can earn this amount of revenue. Moreover, the amount of US economic welfare becomes H-(B+E). Hence, Consumer surplus will be affected adversely for U.S people after imposition of tariff (Crowley, Meng and Song 2018). On the contrary, this trade policy further helps producer and government positively.

Now, the situation of tariff imposition can be observed in the context of China, which is considered as an importing country.

Source: (created by author)

The figure has represented impact of tariff impose on China’s product and consequently the impact of this trade policy on consumers, producers along with government and aggregate welfare of China. This situation is described below:

Consumer surplus in this country is going to increase by S while producer surplus of this similar country reduces by (S+T+U+V). In this context, it needs to mention that imposition of tariff by US, cannot influence government revenue of China. Moreover, the country experiences a loss in national welfare by T+U+V unit. These impacts on consumer, producer, and government along with national welfare of China will be same as Australia (Crivelli and Gröschl 2016). This is because Australia also exports some products to US. However, the impact will be less compare to that of China, as US has exempted this country from tariff (Chow and Schoenbaum 2017). Considering the global economy, it can be observed that the entire efficiency level of all countries have reduced significantly.

2.

Trade deficit of a country implies that its imports exceed the amount of exports. In this situation, domestic currency goes outside the home county to other foreign countries. Under free trade, a country becomes specialised on some particular products and produces these at comparatively lower prices (Wearden and Keneally 2018). In this situation, international trade creates advantages for both exporting and importing countries to enjoy lower opportunity costs. However, trade deficit can adversely affect the country from various aspects and further hampers economic condition of the country. Firstly, due to huge amount of cash outflow, economic growth of this country is going to reduce significsntly and this in turn decreases total employment of the concerned country. In addition to this, currency value in this context will reduce in terms of US dollar. Continuous trade deficit can adversely affect interest rate of the country as well (Freund  2017). These are the main reasons for which US is pressurising China to reduce the trade policy for keeping its economic condition stable. Moreover, economic downfall of China can indirectly affect US economy in a negative way, as China and the US have strong trade relationship. Moreover, increasing economy of China has already occupied international market. In this situation, slow economic growth of China can bring world recession in global market. As of 2017, the amount of trade deficit of the US with Chin was $375 billion. This happened because US exported only $130 billion to China while imported $506 billion.  

The Trade War between China and US: Key Events

Trade dispute implies trade war between two countries due to imposition of tariff. In this given context, trade war between China and US can be observed. These two countries have captured significant share in global economy through their dominating and enhancing market. Each county has strong international trade relationship with others in terms of imports and exports (Bartz 2018). However, trade war can further affect global trade, due to economic decline of these two countries. This war can also affect Australiana market, as the country has strong trade relationship with China (Leamer and Stern 2017). Trade war can adversely affect economic growth of China and consequently exports and imports of Australia with China can be decline. This situation will be true for other countries as well. Hence this scenario clearly state that global trade is going to experience “dark day”.

In this situation, US have taken some initiatives to prevent trade war with China, as this could destabilise the global economy. For this, US have postponed the idea of tariff imposition of imported goods of China. The US has possessed various commitments from officials of China and consequently this could reduce trade deficit between these two countries. Hence, some effective measurements are required to consider for cutting this trade deficit. China cannot reduce its product imports from US because of increasing consumption along with economic development of higher quality. However, the US cannot reduce this trade deficit by imposing tariffs on Chinese economy and for this, the US needs support from other partners for convincing China to produce goods, such as steel, at a slower rate.

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