Doing Business Around the World
Winter/Spring 2011
Prof. Anna P. Della Valle
Prof. Stefano Massa
OVERVIEW OF CONCEPTS
1. Relationship Between Market Structure, Firm Behavior and Role of Government
 Market structure: from most to least competitive.
 Firm behavior: price and non-price strategies that firms undertake to influence the
market environment so as to increase their profits and/or achieve other firm
objectives, including: price taking, price discrimination, two-part tariffs, predatory
pricing, tie-ins, vertical integration, R&D investment, raising rivals' costs,
mergers and acquisitions,.
 Different forms of government intervention: antitrust; regulation of entry, prices,
investment and quality; patents, copyrights and intellectual property rights.
2. Theory of the Firm
 Different types of firm structures: sole proprietorships, partnerships, corporations.
 Who runs firms and with what objectives.
 Problem of separation of ownership from control.
 Firm growth decisions: whether and how to expand.
Applications:
 US: Perverse effect of stock options on managerial behavior in the 1990s.
 Italy: Gucci’s decision to go public vs. Zegna’s decision to stay private.
DOING BUSINESS UNDER DIFFERENT MARKET CONDITIONS
3. Strategies in Extremely Competitive World Markets
Topics: Price-taking behavior, little or no product differentiation, cost-cutting and
efficiency-enhancing strategies, economies of scale/scope, choice of technology and plant
size, exposure to imports, protectionism, rationales for and impact of price floors, tariffs,
quotas, subsidies and exchange rates on importing and exporting countries’ producers and
consumers, effectiveness of WTO sanctions in resolving trade conflicts, contribution of
bilateral agreements in international trade liberalization.
Case studies:
 Which commodities markets are extremely competitive: grain, wheat, coffee,
sugar, cotton, oil?
 Distinguishing between competitive vs. predatory prices (dumping).
 US phases out quotas on Chinese textiles
 Is China’s RMB/US$/Euro exchange rate “fair” competition?
 Poor countries’ walk out of World Trade Association (WTO) talks in Cancun.
 WTO retaliatory tariffs: EU/US steel and bananas; US/Brazil cotton.
4. Strategies in Monopolistically Competitive (Niche) Markets
Topics: The power of successful product differentiation, branding, marketing, persuasive
vs. informational advertising, estimating effects on cost and demand, experience vs.
search goods, the role of reputation, Lancaster’s characteristic model, the Lerner index,
the Dorfman-Steiner condition, Akerloff’s paradigm.
Case studies:
 Top 10 US advertisers: advertising budgets ranging from 10 to 30% of sales.
 Why do consumers pay premiums of 30-40% for brand name products (even
when they have identical ingredients?)
 Strategy Italy: focus on quality and uniqueness
 Strategy Germany: focus on technology and reputation
 The Chinese threat: how can you turn your competitors into clients?
5. Strategies in Non-Cooperative Oligopoly Markets
Topics: Modeling behavior and devising strategies, applying game theory to firm
decision-making, first mover/incumbent advantage, dominant strategies, estimating how
uncertainty, transactions costs, information, subsidies, change the market outcome.
Case studies:
 Hollywood: what movies to release and when
 Advertising: whether to adopt a high level advertising budget
 Boeing/Airbus: whether to develop new large-body aircraft
6. Strategies in Cooperative Oligopoly Markets (Cartels)
Topics: Significant advantages of cartel-like behavior, factors that facilitate cartel
formation, causes of cartel instability and cheating.
Case studies:
 OPEC oil cartel’s strategy: is it still profitable?
 Russia: wild card in the world oil market
 Cartel strategies among major producers of pharmaceuticals, beer, flat screens,
animal feed and switch gear in the US, EU, China and Japan.
 Price fixing in the market for vitamins: Roche/BASF/Takeda/Rhone Poulenc.
7. Strategies in Monopoly (and Large Share) Markets
Topics: Barriers to entry, ownership of key resources, cost advantage, know-how,
patents, brand name, entry-deterrent and market retention strategies, economies of
scale/scope, mergers and acquisitions, anti-competitive behavior, antitrust rules and
regulations, US Department of Justice merger guidelines.
Case Studies:
 Entry-deterring strategies in the airline industry.
 Why do cell phones and printers require their own unique peripherals?
 Microsoft, Intel antitrust suits: illegal attempts to monopolize market for PC
operating systems and microchip processors
 IBM antitrust suit: illegal tie-in
 UK blocks NewsCorp’s proposed acquisition of BSkyB
 US denies merger of DirectTV and Echostar satellite
GOVERNMENT INTERVENTION INTO MARKETS
8. Government Intervention into Markets: Regulation
Topic: What industries to regulate, why and how, regulation of entry, standards, quality
of service and prices, regulation of natural monopolies, cost-plus vs. price-cap methods,
implications for gold-plating and efficiency, unique issues associated with regulation of
public airwaves, media and information services and addictive goods (cigarettes and
liquor).
Case studies:
 Italy: Italian highway system: a public/private partnership
 US: media cross-ownership and concentration rules
 Fuel efficiency: gasoline taxes vs. mileage standards vs. CO2 emissions fees
 Canada: Anti-smoking cigarette packaging campaign
 Should the government intervene to avoid excessive bubbles in the real estate and
stock markets?
9. Government Intervention into Markets: Deregulation and Liberalization
Topic: What industries to deregulate/liberalize, why and how, privatization of
infrastructure industries, rationales and conditions for deregulation, controversy
surrounding excessive liberalization of financial markets.
Case studies:
 UK: Deregulation of electricity generation
 US: Deregulation of telecommunications and cable TV industry
 Greece: government opens “closed” professions
 Italy: privatizations--from telecom to tomatoes
 Eastern Europe: privatize, liberalize—too much too soon?
 Degrees of financial markets liberalization: US, Cina, EU.
LOBBYING AND PUBLIC AFFAIRS
Topics:
 Introduction to lobbying: what is lobbying and what is public affairs
 The rules of the game: the role of politicians, associations and other stakeholders.
 Ethical aspects of lobbying and respect of the law
 Lobbying as a fundamental business strategy
 Lobbying and traditional media: creation of a media network
 Lobbying and new media: web 2.0 and social networks.
 Lobbying in action: operating methodologies and building coalitions.
 A comparative analysis of lobbying in the US and the EU
 Lobbying in Italy: A particular case history.
 Difference between regional and local lobbying
Case studies:
 Landmark lobbying cases in the US and the EU
 Microsoft lobbying strategies in the US and EU
 Apple lobbying strategies in the EU
 Political intelligence and lobbying: the reform of the US health care system
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Impact of the end of the Multifiber agreement on lobbying strategies in textile
manufacturing
Lobbying strategies for airlines in crisis
J.C. Penney lobbying strategy