Economical Analysis of Worldbiotechcom, Inc - Essay Example

Economic Analysis of Worldbiotech Transport Project Submitted Submitted by: Submitted] Briefing on the High Technological Transport System Worldbiotechcom, Inc has announced the creation of Star Trek style transporter technology applicable for human and cargo transport. The revolutionary technology offers many opportunities and many businessmen are already attaching themselves in production, manufacture, and marketing of the product. In this brief, I am to provide an analysis of the wisdom of investing in the project that is believed to create a surge or a bubble in the economy.

History would show two stock market surges that came as a result of the introduction of new technologies: the 1920 American Stock bubble and the late 1990’s Dot-com bubble. The former was driven by the introduction of cars, television, radio and electric power while the latter resulted from the use of Internet and emergence of e-commerce. NASDAQ index spiked then abruptly went into a steep decline after the dot-com bubble burst leading many investors to bankruptcy. There was so much hype in the new technologies as the forecasted prospects were very promising only to be dismayed by modest results and dismal returns.

For example, so many people invested in the Internet because they thought that they could easily gain an easy buck given the increasing availability, accessibility and minimal investments it requires. Instead, they were driven to bankruptcy by websites offering free services. (Smith et al 2002 ; Topol 2003) The most pressing problem with regards to the new transport system is not so much in the entry of other players or the saturation of the market but in the inherent risk in using it. While other means of transportation such as automobiles, ships and airplanes have their own death statistics, they offer a relatively higher degree of confidence because these modes can be maneuvered and abandoned to prevent the loss of life and limbs.

Even if we insist that the transport mode is safe and use simulation runs as evidence, we can never discount the possibility of an accident. A single accident could send tremors across the whole industry and send it tumbling down because people would be scared of the prospect of being atomized to nothingness and being unable to do something about it. It is expected that exceptional mandatory quality standards will be implemented by the government in light of the risks involved in the use of the technology.

The worst case scenario would include the disclosure on the hazard of using the technology which can dissuade potential buyers or users. Controls on employment or production such as exhaustive testing could prove to be very expensive. The government can also impose price controls on competitive markets that are directly linked to the commercial production of the transport technology which can prove to be too restrictive as to allow a decent profit margin. De Long and his colleagues (1990) inform us that it is a well known fact in the business world that government regulations do not result to net benefits for the company.

The effect of externalities could also result to market failure considering that the new mode of transportation basically spells disaster for the automobile and oil production industry whose profits are so high that they can afford to railroad and sabotage attempts to establish the industry. A high tech venture such as the transport mode would also require appropriate levels of information that also comes at a high price. In effect, there are no foreseeable acceptable returns in investing in the project.

The hype and fanfare generated by the revolutionary idea will be replaced by concerns regarding its safety and this alone is enough to spell doom for the investment.References:De Long, J. Bradford; Shleifer, Andrei; Summers, Lawrence H. and Waldmann, Robert J. "Noise Trader Risk in Financial Markets." Journal of Political Economy, 1990, 98(4), pp. 703-38. Froot, Kenneth A. and Obstfeld, Maurice. "Intrinsic Bubbles: The Case of Stock Prices." American Economic Review, 1991, 81(5), pp. 1189-214.

Smith, Vernon L.; Suchanek, Gerry L. and Williams, Arlington W. (2002) Crashes, and Endogenous Expectations in Experimental Spot Asset Markets." Econometrica, 2002, 56(5), pp. 1119-51. Topol, Richard (2003). "Bubbles and Volatility of Stock Prices: Effect of Mimetic Contagion." The Economic Journal, 2003, 101(407), pp. 786-800