• Issues
  • Issues emerge
  • Can analyze sources of emergence
• Interests (Private Sector, NGO’s)
  • Preferences are formed
  • Organized and unorganized groups have stakes
• Information
  • Is transmitted by interests and media to
• Institutions (Public Sector) resolve conflicts
  •  Legislatures
  • Eforcement agencies (DOJ, FTC, Courts)
  • Rulemaking agencies (FCC, SEC)

- Impact over time

1. Issue Identification

2. Interest Group Formation

3. Legislation

4. Administration Enforcement

- Impetus for public sector action over time

1. Leading Activity

- Experiments

2. Public Need is Identified

- Focusing Event - opening of window

3. Public concensus is reached

- Offensive (find solution)/ Defensive (delay) strategy

4. Trailing Activity

- Closing of Window

- Problem addressed/failed

- Change in interest

Sources of Nonmarket Change

1. Scientic discoveries and technological advances

2. New understandings

3. Activist Group Activity

4. Institutional Change

5. Moral Concerns/Ideology

Theory of Media Coverage & Treatment

Societal Significance vs Audience Interest

- Low to (medium) to high

1. Interpretation & advocacy (moderate)

2. Position taking & Advocacy (extensive)

3. Factual (Low)

4. Factual & Interpretation (moderate)

Market + Moral + Nonmarket = Integrated Stategy

1. Market

- market structure, competitors, branding, market positioning

2. Nonmarket

- 4 I's, nonmarket positioning

3. Moral

- Social responsibility, ethics

- established by moral consensus or by clear govt legislation

Ex: childrean should not be exposed to porn

- moral standing is often present but govt hasn't spoken on the issue or moral consensus hasn't been reached

Ex: no advertising of children's food on Saturday morning TV

- rights may be with or without moral justification

EX: free school bus service for children

As legislation is enforced

- Managerial control decreases

- Impact on managers increase

Transmittal mode

- straight-forward presentation of facts, description of events

- interpretation of facts and events

Advocacy Mode

- Exploration of social significance

- Advocacy of a course of action

Demand

- audience interest generates demand for media coverage

Supply

- Societal significance augments media coverage for dramatic events

Stage 1: Generate Alternatives

Stage 2: Screen ethical principles

- eliminate alternatives contrary to law, business policy, widespread ethics

Stage 3: Analysis

- 4 I's

Stage 4: Choice

- Strategy formulation

Stage 5: Implementation

Susceptibility to Public Protests

(Products)

1. Consumer products
2. Products with low switching costs
3. A brand name that can be damaged
4. Produce negative externalities

Susceptibility to Public Protests

(Firm Organization)

1. Multinational/global operations
- Activists can choose jurisdiction for action
2. Decentralized organization
- One division may take actions without considering ramifications for other divisions
3. Highly visible firm

- when state regulatory agencies created to act in the public interest favor the act in the commercial interest of the industry it regulates

- a form of market failure

- logical because they have the greatest financial stake

- when a narrow, special interests group that is well organized pushes for regulatory change that is self-benefitting

EX: tariff protection, copyright, tax burdens

- Regulation is supplied in response to demand

- Political support in exchange for favorable legislation

- General public interest is not as well served

- General issue?

- Who are the supporters/opponents?

- Demand side - Benefits from supporting/opposing

- Substitutes? Groups magnitude?

-Supply Side - Ability to generate political action?

- Group Magnitude? Political Resources? Cost of Organizing?

Prediction? --> What's actors' expected influence

- Distribution of benefits/costs of political action

- Interest Group Politics (CB, CC) - public believe to be unaffected

- Client Politics (CB, WDC) - generates in private sector

- Entreprenuerial Politics (WDB, CC) - generates in public sector

- Majoritarian Politics (WDB, WDC) - lot of public discussion

1. Natural Monopoly

2. Externality

3. Public Goods

4. Asymmetric Information

5. Moral Hazard

- if you are willing to pay (marginal) cost of providing a good or service, you should be able to obtain it

- Collective action is rational if its achieved... increases aggregate benefit

- Free riders transfer the costs to others

- Labor unions? gain the benefit of a union without doing anything?

- unions charge a few to cover costs of nonmarket actions 

the outcome of a vote is the median if

- legislative process is open such that alternatives can be considered

- legistlators are lined up on a one-dimensional policy outcome space

Multi-level lobbying

- Company + Govt

- CEO --> Senator

- Managers give political/technical info

- Govt staff listen

1. Targeting

2. Objectives

3. Coalitions

4. Information/Arguments

5. Substitutes

1951

- France and Germany put coal mining and steel making capacities in one common pool governed by one authority independent of each nation

- Form customs union

- Free Trade internally

- Common external tariffs

- 1987

- Create a common market by 1993

- Created the European Central Bank (1998)

- Euro 2002

- current treaty to change the inner workings of the EU

- not all of the countries have ratified the treaty

- Harmonization

- development of common standards (health, auto safety, etc.)

- Fiscal harmonization (tax policy, govt spending, subsidies)

Mutual Recognition

- professional... aka doctors

- when there are no barriers to entry there is still the threat of entry of others

- companies act competitively to keep them out

- involves negotiating solutions to internalize externalities

- w/ trans. cost = parties can bargain to socially efficient outcome regardless which party is assigned entitlement

- w/o cost = maybe infeasible with many parties or high trans. cost

- govt sets entitlement and regulatory standards

- Bans (lead in paint)

- Mandatory products (airbags)

- Mandatory performance standards

- Pigouvian taxes on externalities

- Permits to limit pollution

(companies all get permits)

(companies have different costs of abatement)

(meet allocation by buy/sell permits)

- firms must publicly report their emissions to air, water, and land

- info in census data

- plots the what people think mortality rates are against their actual rates

- Certain ones are overestimated/underestimated

TT, TF, FT, FF

- False positive - Type I

- False Negative - Type II

- agency has a role in setting standards and requiring warnings

- agency has a role in correcting violations (recall etc)

- Precautionary principle (better safe than sorry)

Assignment of entitlements

Costs of ensuring safety should be assigned to the party that

a.) can achieve social efficiency at the least cost

b.) is int he best position to assess social costs and benefits

c.) can at the lowest cost induce the other party to maximize social welfare

less costly for producers to ensure safety than customers

- Class action is a form of multiparty litigation in which one or
more persons sue on behalf of themselves and all others
who have suffered similar harm from essentially the same
wrong.

Class action reform moves venue to Federal level, not state.

- meant works of original expression committed to a media: art, books, music

- originality

- term of copyright = fixed but lengthy

- owner can charge fee for use

Meeting the needs of the present without compromising the welfare of future generations

I=P x A/T

I=environmental impact is sustainable if growth in P and A is balanced by growth in T

P=Population (Assumed to Grow)

A= Affluence or average per capita consumption

T=Technological Innovations

- Contraception

- Education of Women

- Single Birth (China)

- Cultural and Religious Barriers

(graph showing that as the literacy rate among women goes up, the number of births per woman goes down)

Prehistoric: Domesticated animals replace hunting and gathering

17th - 19th centuries: crop rotation, mechanical technology, opening of new lands

20th century: chemical fetilizers, pesticides, better irrigation, genetic modification of crops

Malthusian Concerns ( population ever-growing, food lagging)

Increasing air and water pollution

Exhausting of natural resources

Loss of biodiversity

It takes energy to

-Acquire energy

-transport energy

-store energy

-use energy

alternative energy has lower EROEI

(Net Energy + Energy Invested) / Energy Invested = EROEI

Principal: top level of government /citizens

Agent: Official representing government

-Principal wants the agents behavior to reflect the interests of the public/government. Agent wants to minimize effort and maximize personal gian

-A bribe sacrifices the interests of the principal for the interest of the agent

Shleifer and Vishny (1993):

Corruption

Government institutions & structure of political process are important determinants in teh level of corruption

Corruption can vary dramatically in the amount of inefficiency it introduces

illegality and need for secrecy make corruption more distortionary than taxation

Outlaws the payment of bribes by american firms to

-foreign officials

motivated by the 1975 Lockheed scandal

-payment to private businesses not prohibited

- facilitating payment not prohibited

- extends to nay international company that has business in US

- It is a crime for enterprises to directly 

or indirectly offer, promise, give, or 

demand a bribe or other undue 

advantage to obtain or retain business, 

anywhere

-Facilitating payments are acceptable (small payments to expedite routine business needs)

Relativism: Local Traditions and context

- Appropriate firm behavior in a country or Culture is determined by its laws and customs

Cultural Imperialism: Moral absolutes

- Firm maintains the standards of its home country and judges others by those standards

Human Rights

UN Code

UN Code (1948 Universal Declaration of Human Rights)

- Freedom from torture

- No use of forced child labor

- right to minimal education and to an adequate standard of living

- right to vote and to free expression

(seek balance b/w Imperialism and Relativism)

- respected for universal human values which determine absolute moral threshold for all business activities

- respect for local traditions

- belief that context matters when deciding what is right and wrong

Valuable way to get corporations to buy into 

new norms of behavior without the need for 

government intervention

- specific commitments on workers rights

- independent auditor comes in, and assesses whether a company is in full compliance

- company uses certification of compliance as a marketing tool. (e.g. in commercials and packaging)

20 Corporations and 12 Unions and 

watchdog groups agree to adhere to 

nine widely accepted UN principles on 

human rights, labor standards, and the 

environment (not a legal code)

Signatories self-report annually on 

progress in implementing these 

principles

Studies of immediate consequences of a business

Can be used to prevent tension between companies and communities

- "meant for things" - gives holder exclusive rights to use/sell/license their invention for 20 years after filing

- for new, useful, and non-obvios innovations

- machines, processes, chemical compounds

- not for abstract ideas

- US patent rights are effective only within the US

- meant for distinctive name or symbol

- protects brand reputation

- 10 yrs, renewable, registration required

- cannot be used by others in class

- can lose if ordinary usage, e.g. aspirin

- China is the largest source of counterfeits seized

- 90% of digital recordings are pirate

- brand names are main focus

- intended to keep information from becoming public knowledge

- secrets that give edge - list of suppliers, prices, formula, pattern, processes, operations, materials, etc.

- liability if acquired by improper means

- users must often sign non-compete agreements

- affects workers that transfer within industry

1. Invention disclosure

then one of three options

- Copyright and publish (preempt patents by others)/Trademark

- Maintain as trade secret (computer codes, product formula, etc)

- File patent application (US and/or foreign)

3. Litigation decision

- monopoly granted in the short run to spur dynamic efficiency in the long run

- creates incentives to use resources efficiently

- 75% of value in publicly traded firms comes from intangible assets

- Sherman Act (1890)

- Section 1 - every contract or conspiracy in restraint of trade is illegal

Section 2 - Every person who shall monopolize any part of trade is guilty of a felony

- EC Treaty (1990)

- Article 81 - Prohibits agreements between firms to prevent competition in Common Market

- Article 82 - Any improper exploitation of a dominant position in common market is prohibited

- most serious antitrust infractions

- price fixing (per se illegal)

- Non-price manipulation (it affects prices somehow)

- bundling/tying/exclusive dealing

- (rule of reason)

Horizontal/Price - Price fixing (2 agree on price)

Horizontal/Non-price - Allocation of customers (agree to divide up buyers and not sell each others list)

Vertical/Price - Resale Price Maintanence (Mfr tells Macy's to sell product for atleast a certain price)

Vertical/Non-price - Exclusive Dealings (tell a wholesaler to sell only in a specific area and its the only distr. there)

Is the practice "manifestly anticompetitive?

Are there no possible "redeeming virtues?

If Yes - per se illegal - just need to determine if defendant engaged in act

If no - Rule of Reason (more questions)

- legitimate business purpose served?

- less restrictive alternatives available

- is competition enhanced?

- are similar practices used by competitors?

- Markets are fragile and prone to failure

- Govt needs to protect society from economic power

- Market power derives from horizontal power and from vertical arrangements

- Solution - proscribe many practices as per se offenses

- Markets are resilient

- competition, not govt, is the best protector of consumers and economic efficiency

- market power can only rise from horizontal power

- Solution - Judge business practices in terms of their effects on efficiency and prices - Rule of Reason

- markets are resilient but have imperfections

- competition is the best protection of consumers, but govt can be required

- market power is derived from horizontal factors but can be extended through vertical arrangements and strategic behavior

- Solution - judge business practices in terms of impact on current and future competition

- Use rule of reason except for 'egregioug' practices such as price fixing

- Structural school - cartels almost always agree to raise list prices or lower total production or both

- Chicago School - difficult and unlikely, may occur in industries with govt regulation

- New IO School - is possible with repeated encounters

- possession of monopoly power in a relevant market with INTENT to suppress competition

- not as a consequence of superior product, historical accident, business acumen

- the power to control price or exclude a competitor

- requires predation and entry deterrence

Structural remedy - meger prevented, contracts dissolved, divestiture

Conduct remedy - forced licensing of IP, change in rebate practices

- Merger Regulation 1989 - prohibits concentration with a community dimension by which effective competition is significantly impeded

EU Merger Reform 2002  - new guidelines expand consideration of efficiency claims

- Will a merger significantly increase concentration?

- Does a merger raise concern about competition?

- Is another entrant likely to counteract the competitive effects of concern?

- re there efficiency gains that can't be achieved by any other means?

- But for the merger, will either party fail?

Bottom Line: Do customers pay lower prices?

Market Concentration

(Herfindahl-Hirschman Index)

HHI - Sum(market shares) ^ 2

- If HHI < 1000 --- Not challenged

- If HHI = 1000-1800 --- unlikely challanged

If HHI > 1800 --- likely to investigate

(increase of a 100 likely to create market power)

- any situation in which one party (the principal) needs to delegate actions to another party (the agent)

- principal (shareholders) - wants to provide the agent with incentives to work hard and make decisions about risk that reflect the interests of the principal

- agent (managers) - may have interests that conflict with the principal's and the ability to pursue those interests

- reflects market failures of asymmetric info and moral hazard

- knowing misrepresentation of a material fact on which a victim reasonably relies and which causes damages (losses)

- increase transaction costs of trade

- appropriating property of others (shareholders) without their consent

- managers collecting unwarranted benefits

- unproductive uncertainty for investors

1. Align incentives

2. Monitor - (but costly)

3. Punish - strong enough punishment can make agent act on principals interests

who? Board of directors

1. Obedience - must act within employment authority

2. Diligence - standard of reasonable care in performing acts that could potentially hurt others

3. Loyalty - put companies interests before self-interest