G202 Assessment 2
What other options did Chiquita have to counteract the Eu common policy?
- could have done like their competitors and go into Traditional ACP regions and produce
Nonmarket strategies to restrict competition - government _______ - patent or copyright protection - incumbent expertise with ______ bureaucracy - _____ regulations - __________or _____ certification
- government Licensing - patent or copyright protection - incumbent expertise with corrupt bureaucracy - trade regulations - government or NGO certification
Market strategies to restrict competition: - guarding ______ secrets - control of an ___________ resource - exclusive _______ and customer ____-in - collusion --> form a ______ and act as a monopoly
- guarding trade secrets - control of an essential resource - exclusive contracts and customer lock-in - collusion --> form a cartel and act as a monopoly
What was Chiquitas role in the US v Latin America v global banana trade?
US company with minimal employment in US but largest producer in Latin America and largest sales worldwide at time of case
Who were the players in the banana industry and where were they based?
US: Chiquita, Dole, Del Monte UK: Geest, Fyffes Ecuador: Noboa
tariffs are ____ placed on ____ which directly affects the domestic price charged on _____
tariffs --> taxes on imports directly affecting the domestic price of the import
tariffs result in: _______ domestic prices (by the amount of the tariff) ________-consumption in the __________ market over-_____________ in the _____________ market ___________ imports to the domestic market
tariffs result in: higher domestic prices (by the amount of the tariff) under-consumption in the domestic market over-production in the domestic market less imports to the domestic market
What is the role of the Central Selling Organization for DeBeers?
the CSO brings together mines and sellers under fixed p and q and holds contorl over the market with stockpiling
if MR>MC....
firm could make a profit by selling one more unit
if MR<MC....
firm would lose money on selling one more unit
Airbus and Boeing are playing a game where each manufacturer is deciding between making planes capable of carrying large numbers of passengers (Seat Capacity) or making planes that are more fuel efficient (Fuel Efficiency). Suppose that the following matrix represents this situation: Airbus Fuel Efficiency Seat Capacity Boeing Fuel Efficiency (1,1) (4,3) Seat Capacity (3,4) (2,2) What is/are the Nash Equilibrium(s) in this game? (Fuel Efficiency, Seat Capacity) and (Seat Capacity, Fuel Efficiency) (Fuel Efficiency, Fuel Efficiency) and (Seat Capacity, Seat Capacity) (Fuel Efficiency, Fuel Efficiency) only (Seat Capacity, Seat Capacity) only
(Fuel Efficiency, Seat Capacity) and (Seat Capacity, Fuel Efficiency)
Game theory: Secure Strategy
(w/o dominant strategy) would want to play the strategy that guarantees the highest payoff given the worst payoff
what kinds of special interests might cause nations to adopt trade restrictions?
- business trying to gain mkt power over competitors - businesses trying to save jobs and stop creative destruction --> which gets votes for politicians
What were the politically motivated, lobbying intense actions Chiquita took to counteract the EU common policy? any success?
- Bob Dole (failed)- pay to play-- give him their jet during campaign so he talks about banana trade war --> looked bad for Chiq and politician - US Trade Representatives (USTR) --> wanted retaliatory tariffs and quotas on Euro goods where Chiquita though they had been discriminated against (Section 301) -- but USTR didnt want to get involved in trade war bc Euro currency value gaining economic power at the time - General Agreement on Trade and Treaties - comprised only of Latin American countries so Chiq cant go but tried to get LA countries to go and file grieve on Euro policy for bananas --> didnt work bc Euro makes up large portion of action committee --> Framework Agreement
What were the major threats facing the palm oil industry?
- labor shortage in Indo bc increased incomes from success of palm oil industry drawing people to cities - new land ban of 2 yr moratorium to study effect of palm oil production - activist pressure--> CPG threaten to stop buying pal oil prods --> western consumers
Why couldnt Chiquita try to counter the EU policy and go into Asia or the US?
- no Asia bc perishibility and they dont like the taste of LA bananas - no US bc would flood market and dec price
types of corruption
- petty corruption - grand corruption
Types of conflict of interest
- self-dealing - influence peddling - accepting benefits - misuse of inside information - misuse of employer's property - outside employment or moonlighting - post-employment
What were the major opportunities for growth in the palm oil industry?
- western non-transfate demand - low cost-high yield prod - growing demand bc v versatile prod :biofuel, palm oil leaf shingles --> ^asian income ^d
Why might nations adopt trade restrictions?
----> protect domestic bus - national defense - retaliation against dumping - protection of infant industry - special interest influences
What share of market power do monopolies have?
100%
You are the manager of a movie theater that is the only one in a local market, so you have strong market power. You have extensively researched your customer base and realize you have two types of segmentable customers: (i) students who have an elasticity of demand for movies of -2.7 and (ii) senior citizens who have an elasticity of demand for movies of -5.1. Which of the following pricing schemes would you employ to enhance profits? a. Set higher prices to the students as their demand is relatively more elastic. b. Set higher prices to the students as their demand is relatively more inelastic. c. Set higher prices to the senior citizens as their demand is relatively more elastic. d. Set higher prices to the senior citizens as their demand is relatively more inelastic.
B. bc inelasticity--> decisions less affected by changes in price --> can charge higher p bc students will probably continue to buy
Why did the EU adopt the Common Policy? for protectionism or developmental aid?
BOTH prot and dev aid Protectionism to aid domestic bus Geest and Fiffes bc already operating in Trad ACP area Developmental Aid bc giving back to former colonies and promoting economic growth bc getting Chiquita, Dole, and Del Monte to go help their former colonies
What did DeBeers consultants, Bain Consulting, find after strategic review? How did DeBeers change their approach to advertising and branding?
Bain --> no longer "buy Diamonds" --> "Buy DeBeers" bc they established that people are extremely loyal to the DeBeers image and value branding and tractability--> but this is risky bc then anti-trust laws could prosecute
How vital were banana companies to certain national economies?
Banana companies provided infrastructure for developing countries and housing for workers ..sometimes extensive control when become *Banana Republics* where countries are collect by banana company puppet masters in order to control production and workers
You are a Dentist in Bloomington that has a thriving practice based on the large number of college students in town. You have one of the highest wisdom teeth extraction referral rates of all dentists in town, and you refer all of your patients to the oral surgeon where your brother works as a receptionist. What type of conflict of interest is most illustrated within this scenario? a. Self dealing b. Misusing inside information c. Influence peddling d. Post-employment
C. Influence peddling
Based on his speech to the alumni of the Harvard Business School in 1999, DeBeers chairman Nicky Oppenheimer's main argument for why US anti-trust prosecutors should leave the DeBeers cartel alone was that a. US antitrust policies do not apply to non-US companies, and DeBeers is based in South Africa. b. DeBeers can no longer be considered to have monopoly control of the diamond market as they are facing increased competition from several independent diamond mines. c. DeBeers does not sell any of its diamonds into the US market, and therefore does not have a significant business presence in the US. d. DeBeers stabilizing efforts in the diamond market are critical for the economic growth potential of many African nations' economies.
D. bc US had just signed initiative to support African economic growth
perfect price discrimination is where each consumer is charged a price _______ to their ______________
EQUAL to their WILLINGNESS to PAY
What was the Framework Agreement and did it help or hurt Chiquita's interests?
Euro gave 4 countries on action committee of GATT larger banana quotas in exchange for voting against Chiquita's cause
T/F Tariffs dont raise revenue while quotas do raise revenue
F Tariffs--> rev Quotas--> no rev just inefficiency
T/F after quota prices are directly affected by licensing fees
F after-quota p NOT affected by licensing fees
Firms with market power set prices ____ and output ______ than efficient levels, but this is socially inefficient because too ____ units are produced and sold, which gives up some that have value _____ than costs
Firms with market power set prices HIGHER and output LOWER than efficient levels, but this is socially inefficient because too FEW units are produced and sold, which gives up some that have value GREATER than costs
Imperfect price discrimination
GROUPS of consumers are charged different price
How do trade restrictions save jobs? - imports and exports linked through income creation--> restriction of imports causes exports to fail and jobs will be ___ in the ______ industries - import restrictions ____ prices on inputs --> jobs lost in industries that rely on cheap _____ materials - jobs _____ in domestic industry that has ________ __________ but this puts more workers into _________ industries
How do trade restrictions save jobs? - imports and exports linked through income creation--> restriction of imports causes exports to fail and jobs will be *lost* in the *exporting*industries - import restrictions *increase* prices on inputs --> jobs lost in industries that rely on cheap *imported* materials - jobs *increased* in domestic industry that has *trade restrictions* but this puts more workers into *inefficient* industries
In a Dutch Auction the price starts where __________ willing to pay, but incrementally ________ until the first person bids --> incentive to bid at ________ _____ ____________bc otherwise risk that you wont get it
In a Dutch Auction the price starts where NO ONE willing to pay, but incrementally LOWERS until the first person bids --> incentive to bid at WILLINGNESS TO PAY bc otherwise risk that you wont get it
In perfect price discrimination there is ______ consumer surplus bc price matches _________ ____ __________
NO consumer surplus bc price matches WILLINGNESS TO PAY
Quotas result in: ______ imports to the domestic market _______- consumption in domestic mkt over-______________ by domestic producers _______ domestic prices
Quotas result in: less imports to the domestic market under- consumption in domestic mkt over-production by domestic producers higher domestic prices
Bc of criticism for lack of RPSO certification, should Asian Agri lead industry effort to strengthen credibility of RPSO or decrease role of RPSO certification?
RPSO is the industries reputation...but Asian Agri has a better reputation bc RPSO is watered down by other industries wanting to regulate themselves --> no foreseeable return --> no need to certify --> will only certify and enhance RPSO reputation when activists pressure CPFG firms to only buy certified oil which would threaten Asian Agri's growth potential
how do managers attempt to gain market power?
by sustaining any factors that limit competition
T/F Foreign firms do not have a lot of political leverage over domestic policy
T
T/F when there is a consumer surplus people are still wanting to pay more for the item
T
Who lost and who befitted from the EU common banana policy? Who all was affected?
Winners: - domestic producers in Trad ACP --> Geest and Fyffes - govs getting revenue from tariffs and licensing Losers: - domestic consumers bc inc p and dec cons (especially germany) - foreign producers growing in Latin America
Do US anti-trust laws apply to to non-US firms? but has this been successful in prosecuting DeBeers?
Yes US law applies to non-US firms who engage in bus w US firms...but...could never prove DeBeers engaged in trade w US bc DeBeers diamonds go through at least 7 Non-DeBeers Sellers before reaching the US market
How did Asian Agri position themselves to deal with threats and capitalize on the overall opportunities in the palm oil industry?
___Strong Reputaiton___ - tractability, transparency, and credibility in CPO prod - enviro groups havnt targeted them yet-- just CPG's and western ___Saving $___ - deep water ports min transp costs w/ potential for rev generation when let others use it - sustainable plantation mgmt--> lower costs bc all natural :every pest has a natural predator, plant biproducts for fertilizer - incumbent knowledge w corrupt gov
corruption
abuse of entrusted power for private gain
In 2014 chiquita proposed a merger w Fyffe to try to get ahead of current leader, Dole...stakeholders said no...but then...
acquired by Brazilian OJ maker to leverage distribution channels, logistics, and farming
why do imports enhance the welfare of the domestic country?
bc consumer surplus increases more than producer surplus decreases
Why does Nicky Oppenheimer think that DeBeers should not be prosecuted in the US under anti-trust laws?
bc the diamond industry has helped sustain economic growth in African nations when they come in and build infrastructure for the mines - since US had just signed the Commitment ot African Growth and Opportunities Act they too want to see the Af countries grow and prosecuting DeBeers would hinder that growth :Botswana
why do (new) infant industries need to be protected with trade restrictions
bc theyre dumb while learning to compete
sand perception of corruption
believe corruption adds significant cost to doing bus and is associated w 4 economic threats: 1) reduced GDP growth 2) reduced FDI 3) inc income inequality 4) miss-allocation of gov resources towards inefficiency --> SAND slows down wheels of commerce by creating costly frictions
oil perception of corruption
believe corruption helps speed up commerce in an environment controlled by heavy bureaucracy and excessive gov reg --> oil speeds up wheels of gov that have been rusted by gov
if the HHI>2,500 and C4 closer to 1 the DoJ will work to...
block the merger or acquisition
How did Asian Agri hedge consumer-sided risk?
by acquiring certificiaions - RPSO bc longest standing palm oil certification in mkt - ISPO to target Asian consumer base - ISCC to target EU markets
How did DeBeers leverage its 15% premium with customers?
by agreeing to a class action anti-trust lawsuit in the US to pay $295 mil in damages (chump change for them) and follow anti-monopoly guidelines
How has the government promoted competition?
by enacting antitrust policies that make it illegal to attempt to monopolize a market
DeBeers a monopoly or cartel?
cartel bc they were separate mines and sellers that choose to come together under DeBeers bc they are better off colluding and profiting together than competing
when price in the US rises to the world price what happens to US consumption and production?
consumption will decreases bc of the increase in price and production will increase because of the greater price --> consumption<production --> exportation
Game theory: Strategies are the...
decision choices :price, prod, advertising, campaigning, lobbying, regulation, etc
Game theory: Players are the...
decision makers :firms, gov, interest groups
grand corruption
decisions made by high-level politicians often centered on national policy formation, infrastructure decisions, milit equip procurement, or allocation of subsidies
petty corruption
decisions made by low-level bureaucrats often centered on local regs, licenses or discretionary spending
With IMPERFECT price discrimination, CONSUMER SURPLUSS is __________, but not = to ____
decreased, but not = to 0
What market forces can DeBeers control w/ stockpiling?
directly control Supply AND Demand --supply controlled w scarcity and their decisions to release or restrict supply --demand controlled w/ buying from retail market when supply is too great by acting as a buyer-of-last-resort
Domestic consumers will consume as long as value (dUS) is ______________ cost (pW)
domestic consumes as long as value > cost
consumers decide to import when....
domestic p is > world p
US producers will produce as long as their costs(sUS) is ___________ the world cost (pW)
domestic producers produce a long a domestic costs less than or equal to world costs
the export level of a country is the difference between q? and q?
exportation is the difference between the quantity consumed domestically and the quantity produced domestically (Qd - Qs= Qus)
Do exports enhance or hurt the domestic country? why?
exports enhance domestic welfare bc producer surplus increases more than consumer surplus decreases
Did Asian Agri end up strengthening their upstream CPO or downstream CPG?
focus on upstream CPO bc already had great relations w Indonesia and Malaysia so could acquire already cleared land for expansion and emphasize high yield varietals in its plantation turnover
if a quota system exists w/o a fee...
foreign producers pricks up import revenue bc inc in p and q
if quotas rise the price and no government intervention helps bring the price back down...
foreign producers will invade to sell at the higher p
who is helped by trade restrictions?
gov from rev, domestic producers from decreased competition
if the fee = difference btwn the after quota price and the world price ....
gov gets all revenue from fee
Who is hurt by trade restrictions?
gov, domestic production, domestic consumers
The more customers can be grouped with imperfect price discrimination, the greater ______ surplus and lesser ______ surplus
greater producer surplus lesser consumer surplus
more inelastic demand results in
higher markup over cost --> higher posted price
how can quotas create more inefficiency? - if licensing fees do not take away the ___ _____ in the domestic market then ____ ______ will want to lobby to get into the domestic market to sell at the _____ price - lobbying resources
if licencing dosnt lead to reducing the price premium --> p still high--> foreign producers want to get in and sell at higher p --> incentive to lobby
What does the department of justice use to indicate the level of competition in an industry?
industry sales concentrations
an example of imperfect price discrimination:
in-state v out-of-state v international tuition : Victoria secret catalog pricing based on income demographics
If a wine seller accepts samples sent to them by a winery, dosnt really like the wine, just buys from them because they feel bad for accepting and not selling....this is what type of conflict of interest
influence peddling bc using position to secure benefits for someone other than yourself
dick Cheney was the CEO of Halliburton...who contracted with the US gov....when Cheney elected VP Halliburton got more gov contracts....this could be considered what type of conflict of interest
influence peddling or self-dealing if Cheney was not divested from Halliburton
why are mergers and acquisitions activity bad for competition?
less companies competing
quotas can be combined with _________ ________ to generate revenue
licensing fees
gov licensing fees will _____ foreign gains and ______ lobbying inefficiencies
licensing fees--> reduce foreign gains--> no reason to lobby or want to get in--> reduces lobbying inefficiencies
if products are differentiated and/or if markets are segments with multiple rival firms __________ _________ can exist
market power :firms have loyal customers
using the firms expense account to take friends out to dinner and writing it off as a "potential new client dinner" is an example of what type of conflict of interest....
misuse of employer's property
sherman act (1890) made what illegal?
monopolizing market, cartels, and other collusive arrangement
Chiquita learned that Euro-market dependence exposed its business to Euro-political risk. Thus it....
moved into more US-focused products to gain leverage and lower political risk
Game theory: Nash Equilibrium occurs when...
no player can improve their payoff by unilaterally changing their strategy, given their rivals strategy--> no player has regrets from choice bc no better alt to switch to
Have the members of the DeBeers organization been stable over the years?
not always, bc incentive to cheat and leak diamonds to the market which increases their sales at the set price for a one-time profit --> but DeBeers ends up punishing them w a lower quota of diamonds next year :Zaire, Israel, Russia
Since settling with the US gov how has DeBeers cut out a lot of the intricate trades that happened outside of the US?
opened "signature stores" in US
Game theory: Payoffs are the...
outcomes of the decision choices :profit or loss
When one holds multiple employment positions at one time, professional behavior can be baised...such as in the case of Enron & Anderson who had the same firm for internal and external auditing....this would be what type of conflict of interest
outside employment or moonlighting
What is the EU common policy on bananas and how did it affect Chiquita?
policy gave preference to banana coming from former British and French colonies in the Transnational ACP with duty-free access to EU while Latin American countries got ridiculous tariffs and quotas w licensing fees thus...UK based banana co's w production in Traditional ACP areas benefited while US based co's w operations in Latin America struggled unless they moved operations to Traditional ACP
a sequence of employments where you carry a bias from one job to the next...as in the case of Dick Chenney's past employment bias w Halliburton carrying bias into his position of VP can be described as what type of conflict of interest....
post-employment
what was made illegal under the Clayton act (1914)?
price discrimination targets M&A activity that lessens competition
profit maximization through optimal price (Pf)
price is a markup over cost where the markup factor depends on the demand for the product
when exporting what happens to producer and consumer surplusses?
producer surplus increases more than consumer surplus decreases
Foreign Corrupt Practices Act
prohibits US firms from: - engaging in grand corruption - limits petty corruption to only those needed to carry out daily operations of bus :grease money to customs officials
quotas are _____ quantity restrictions placed on imports that ___________ affect the domestic price by creating a situation of ______ demand
quota--> quantity restriction on imports indirectly affecting domestic p w excess demand situation
Game theory: Dominant Strategy
results in the highest payoff for a player regardless of what strategy their rival plays
Assume that U.S. producers have a comparative advantage in producing wheat, if the U.S. opened up to trade we know that domestic prices in the US would a. rise and there would be more domestic consumption. b. rise and there would be less domestic consumption. c. fall and there would be less domestic consumption. d. fall and there would be more domestic consumption.
rise w less domestic competition
dumping
sale of goods in foreign markets at p lower than production costs to devalue domestic prod
when the marginal cost curve is flat, each unit of production adds the ______ amount to total cost
same
if one firm is the sole producer of a product they will produce and sell where? why?
sell at Qf with Pf bc they have a high market power
Because Chiquita had no political leverage in Europe, but a lot in the US, they chose to....
shift to prods wanted in US bc health mvmt --> prepackaged salad
Herfindahl-Hirshman Index (HHI)...
sum of the squared market hsares of all firms in an industry multiplied by 10,000 --> above 2,500 signals un-competitive market
How did DeBeers fight the added competition with brand strategy?
superiority of brand allowed them to strategically sell off their stockpile by taking sales away from their competitors w/o flooding the market with diamonds --> take more mkt share from existing sales so it wouldn't devalue diamond mkt w excessive supply
4-Firm Concentration Ratio(C4)...
the fraction of industry sales that goes to the four largest firms in the industry --> C4 closer to 1 signals un-competitive industry bc just 4 control all market
if the fee is less than the difference between the after quota price and the world price...
the revenue from the fee is split between foreign gains and gov revenue
if the licensing fee = premium ... what is the affect on foreign gains and the incentive to lobby
there would be no incentive to lobby and no foreign gains would be attained
when open to trade the _____ price is forced down to the _____ price therefore domestic production goes ____ and domestic consumption goes ____
trade--> down US p to world p which pushes production down and consumption up bc producers dont want to be losing money and consumers want to be getting items more cheaply
tariffs and quotas experience the same inefficiencies w under cons and over prod which are...
under cons--> net benefit lost over-prod--> net cost incurred
when tariffs produce inefficiency.. -under-consumption causes a net _____ to not be realized - over-production causes a net _____ to be incurred
under consumption--> net benefit unrealized over production --> net cost incurred
influence peddling
using your position to secure benefits for a third party
self-dealing
using your position to secure personal benefits
How should Asian Agri move forward to grow value? Focus on continued expansion of upstream prod capabilities? OR build a more robust portfolio of consumer products (downstream)?
w/ Upstream CPO +already good at CPO +already cleared land +possibility for international expansion +higher yield plants - land ban would lim Indo expansion - loose incumbent advantage if went international -if they get too big they could become an activist target w/ Downstream CPG +long term profits bc diversifying +vertical integration and good repuation bc already have good rep in CPO-- their CPG's would be superior - costly to learn CPG prod -- edu managers, advertisers, R&D - competing w CPO customers --> cannibalization - activists
Game theory: Think like your rivals
w/o dominant strategy, look at the game from rivals perspective to predict their behavior based on their payoff options
conflict of interest
when a professional individual has a private interest that is sufficient enough to influence the pursuit of their official duties -professional -priv or personal interest - official duty
Market Power
when firms able to restrict competition to sustain prices above marginal cost
How does DeBeers and the Central Selling Organization (CSO) use the process of Stockpiling?
when supply is too great DeBeers buys diamonds from around the world and puts them in a vault to pretend like theyre not there --> tricks market into thinking there is a lot of consumers out there in order to defend the valuation of the diamonds
when the world price is below the domestic price _____ ______ have a comparative advantage because the domestic industry ______ from the world
when world p < domestic p--> import foreign producers have comparative adv bc can produce it better
When the world price is _____ the domestic price and the domestic industry has a competitive advantage, the domestic industry will _______ to the world
when world p>dom p --> dom has competitive advantage and will export to the world
Profit Maximization through optimal sales targets (Qf)
where MR=MC
Banana Republics
where countries are collect by banana company puppet masters in order to control production and worker
with IMPERFECT price discrimination, profits are ______ relative to using a single price, but not as ____ as perfect price discrimination
with Imperfect price discrimination, profits are INCREASED relative to using a single price, but not as HIGH as perfect price discrimination
with perfect price discrimination there is no ______ _____ or _______ _______, but market surplus goes to the producer
with perfect price discrimination there is no CONSUMER SURPLUS or MARKET INEFFICIENCY, but market surplus goes to the producer CS=0
When world price is _______ domestic price--> the domestic industry has a _________ _________________
world p>dom p --> domestic has competitive advantage
