Business and Government Relations Midterm Study Guide Chapters 1-9
Business and Government Relations Midterm Study Guide Chapters 1-9 BADM 3102
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Business and Government Relations Study Guide I: Chapters 19 Chapter 1: Market & Nonmarket Environment Examples of Non Market Issues ● Sustainability and global climate change ● Security, health and safety ● Regulation and deregulation ● Intellectual property protection ● Human rights ● International trade policy ● Antitrust ● Social pressure from nongovernmental organizations (NGOs) and social activists ● News media coverage and social media ● Corporate social responsibility ● Ethics The Role of Management Successful management requires: ● Frameworks for analyzing non market issues ● Principles for reasoning about them ● Strategies for addressing them Market and Nonmarket Environments ● Firm’s activities in market environment can generate nonmarket issues and change in nonmarket environment ● Nonmarket issues and actions shape the market environment Analysis of the Nonmarket Environment: The Four I’s : ● Issues ● Interests ● Institutions ● Information The nonmarket environment changes as: ● Issues are resolved ● Current issues progress ● New issues arise ● Nonmarket issues originate from: ● External forces ● A firm’s own actions Sources of Nonmarket Issues ● Scientific discovery and technological advancement ● New understandings ● Institutional change ● Interest group activity ● Moral concerns Anticipating Change in the Nonmarket Environment ● The effectiveness with which a firm and its managers address nonmarket issues depends on their approach to the nonmarket environment: more reactive or more proactive. Chapter 2: Integrated Strategy Market Strategy A concerted pattern of actions taken in the market environment to create value by improving the economic performance of a firm Non Market Strategy A concerted pattern of actions taken in the nonmarket environment to create value by improving overall performance Factors that Affect Opportunities ● Government ● Market ● Private Politics ● Moral Concerns Non Market Strategy and Private Politics Competition & Change in the Non Market Environment Market strategies take the nonmarket environment as given and focus on the: ● Competitive positions of firms in the industry ● Threats from substitutes and potential entrants ● Bargaining power of suppliers and customers Strategies & Borders Market strategies can be characterized as: ● Multidomestic (multinational) ● International ● Global Integrated Strategy ● Synergies can be present between market and nonmarket strategies ○ The overall business strategy is more effective the more those synergies can be exploited Non Market Positioning Positioning provides a foundation for: ● Market or competitive strategy because it can be a source of competitive advantage ● Nonmarket strategy and can enhance a market strategy and its integration with a nonmarket strategy Positioning Spaces ● Positioning in the Space of Public Sentiment ● Positioning in Public Space ● Positioning in Legal Space The Perils of Positioning ● Can create expectations about business practices Activists may: ● Demand more from the company than it was willing to provide ● Seek to promote causes with no connection to the company Non Market Capabilities & Reputation ● Firms create value by developing market capabilities ● Firms develop nonmarket capabilities to add value Forms of Non Market Capabilities ● Expertise ○ In dealing with government, the news media, interest and activist groups, and the public ● Knowledge ○ Of the procedures and functioning of the institutions in whose arenas nonmarket issues are resolved ● Reputation ○ For responsible actions earned with governments, stakeholders, and the public also constitutes a nonmarket capability Organization of the Non Market Strategy Function Four conditions necessary for success: ● Top management must support and be involved in the effort ● Field units and relevant staff departments must be involved ● The issues management unit must fill a void in the managerial decisionmaking process ● Results must come from the effort Chapter 3: The News Media & Non Market Issues News Media in Non Market Issues ● Alert the public, activists, interest groups, and government officeholders to nonmarket issues ● Raise concerns about the policies and practices of firms ● Provide information about the likely effects of alternative courses of action ● Reduce the costs of collective action ● Enhance a nonmarket strategy by conveying information provided by a firm or interest group ● Represent interests and principles consistent with the news media’s perception of its role in society A Theory of News Media Coverage and Treatment ● Coverage and treatment: (Interesting) ○ Straightforward presentation of facts and description of events ○ Exploration of their potential significance and ramifications ○ Interpretation of the facts and events ○ Advocacy of a course of action ● Explanatory variables: ○ Intrinsic audience interest ○ Social significance (treatment) Intrinsic Audience Interest ● The principal predictions of the intrinsic audience theory are that: ○ Coverage increases with audience interest ○ Treatment will be chosen to appeal to and retain an audience Societal Significance ● Reflects the media’s role in serving democracy by providing the information that citizens need Theory of Media Coverage and Treatment Extending the Theory ● Newsworthiness: an issue is more newsworthy if: ○ It has a degree of immediacy or urgency ○ It has a human interest dimension with which the audience can identify ○ If it involves a celebrity ○ If it involves confrontation or controversy ● The cost of coverage ○ News coverage depends on the costs of obtaining information and producing a story ○ Media organizations are forced to rely on lowcost sources of information ● Balance and fairness ○ Journalism standards and editorial controls require that a story be accurate and the treatment be balanced and fair The Nature of the News Media ● News organizations as businesses ○ Primary objective is profit ○ Highly competitive industry ● The profession ○ Journalists are younger, better educated, and more liberal than the American public ○ Journalism is governed by standards enforced by news media organizations and professional associations ● Does the news media treat issues selectively? ○ The news media may not cover every issue under the same criteria ○ Most issues are treated under controls and editorial standards ● Bias, accuracy, and fairness ○ Most nonmarket issues involving business are complex ○ The ability to present that complexity and achieve accuracy, balance, and fairness differs considerably among media organizations ● The Internet and citizen journalism ○ The rise of blogs and social media allows citizens to be journalists *** News Media Companies can be liable for broadcasting false stories/news. If they tell non true stories, then they will lose audience viewers self regulatory. Business Interactions with the News Media ● The need for information ● Media strategies: ○ The unusual is usual ○ Emphasize the consistency of business and the public interest ○ Remember your audience ○ Communicate through the press ○ The medium is the message ○ Establish credibility – not friendship Recourse in Disputes with the Media ● Private recourse ● Recourse to the law: Defamation ○ Libel: false statements that are either written or broadcast ○ Slander: false statements that are spoken ● Political recourse Chapter 4: Private Politics and Social Pressure Private Politics ● Private politics focuses on changing the behavior of private economic agents. ○ Not through government action but through social pressure and the threat of harm to the business ● Frequently led by NGOs and social activists ○ Many have concluded that more progress toward their goals can be achieved by: ○ Targeting economic agents directly rather than by working through government How Private Politics Affects the Nonmarket Environment ● The groups initiating private politics can identify issues about which management either is unaware or has not understood as important to others ● Social activists and NGOs can affect the organization of interests by: ○ Forming watchdog and advocacy groups ○ Mobilizing people to work for causes ○ Individuals, interest groups, and activists provide information that influences public and private politics The Evolution of Private Politics ● Private politics led by social activists has evolved over the past several decades ● Social activists found that corporate campaigns had limits because they could not gain leverage over many companies Cooperative Private Politics ● NGOs with expertise able to adopt a cooperative strategy ● A firm could adopt its own policy or participate in an industry program to address a social issue ○ Frequently these efforts lack legitimacy ○ Do little to reduce social pressure ● Cooperative and confrontational strategies can leave activist groups on opposite sides of an issue Synergies between Confrontational and Cooperative Private Politics ● Most companies prefer cooperation to confrontation when faced with private politics social pressure ● Increase in cooperative engagements between companies and NGOs caused by: ○ The threat from confrontational private politics Susceptibility to Private Politics Activist Strategies ● Activists choose nonmarket strategies just as firms do ○ Seek to pressure firms to change their practices ● Direct pressure is applied by calling attention to the activities of a company ○ Pressure can be applied through centralized and decentralized activities ● Activist groups also use their standing before courts, legislatures, and administrative organizations to petition, sue, and advocate action ● Target selection: an important component of a private politics campaign ○ Activists sometimes target “worst offenders” Benefits of Advocacy Science ● Advocacy Science ○ A frequently used strategy of activists to conduct a policy study or scientific investigation to call attention to an issue ● A study can attract: ○ The media and the public ■ Gives a degree of credibility to the claims of the activists ○ Sympathetic legislators, who: ■ Provide support and introduce bills ■ Hold hearings at which activists can testify Activists’ Generic Strategy Strategies for Addressing Social Pressure ● Assessment ● Strategy and negotiations ● Challenging the activists Addressing the Activist Environment Strategy and Negotiations ● Determining the most effective strategy requires understanding: ○ The nature and strength of the activists ○ The concerns that motivate them ○ The likelihood of media coverage ○ The likely support for the issue among consumers and the public ○ How much harm the activist could cause ○ How central is the issue is to their agenda ○ Whether they are led by professionals or amateurs Challenging the Activists ● The demands made in a campaign often are unreasonable or too costly to meet, and firms resist or fight back ○ This may involve filing a lawsuit against the activist organization ○ Activists and NGOs have been criticized for being both “unelected” and unaccountable Chapter 5: Crisis Management Crisis ● Crises happen even to firms that take measures to avoid them ○ Acts of nature and random events occur ○ BP Oil Spill ○ Domino's Pizza Features of a Crisis ● Unexpected ● Can escalate quickly ● Can damage a firm’s: ○ Operating performance ○ Reputation ○ Credibility of management ● Requires a response or action under time pressure ● Can attract the media and the attention of public and private politics actors Stages of Crisis Management ● Identification ● Escalation ● Intervention ● Resolution Components of Crisis Management Program ● Avoidance ● Preparedness ● Root cause analysis ● Response ● Resolution and beyond the crisis Avoidance & Preparedness ● Reduce the likelihood of a crisis developing ○ Auditing: risks and their causes including reputational risks ○ Ideally, auditing findings must be acted upon. ● Reputations are harder to build than they are to dissipate. Root Cause Analysis ● Identifying the causes of the crisis. ○ This provides the basis for resolution of the present crisis, avoidance of future crises, and preparedness for crises that do result. Response ● Includes actions to: ○ Resolve the crisis ○ Deal with the root cause ○ Communicate with stakeholders, the public, and the government ● Effective and ineffective communication ○ Two principal components of crisis response ■ Communication ■ Rectification ● Concerns about liability ○ In formulating a strategy for addressing a crisis, a firm must consider its: ■ Exposure to liability ■ Response to stakeholders and the public Exxon’s communication with the public after the Exxon Valdez oil spill “The Exxon Valdez spill was an accident, a bad one. But accidents can happen to anyone. If Exxon’s rules and regulations governing conduct aboard ship had been followed, the accident would not have occurred. If Exxon had been permitted to follow the cleanup plan immediately, the effects of the spill would not have been as extensive.” Resolution ● Once a crisis has been resolved, a firm must reassess its crisis avoidance measures and its preparedness Chapter 6: Nonmarket Analysis for Business Nonmarket actions are taken by diverse, pluralistic interests in the context of government institutions Interests ● Have a dual use in nonmarket analysis and strategy formulation ● Interests in the first usage are the actors. ● Interests in the second usage are the stakes of the actors, which provide incentives for nonmarket action. The Demand for Nonmarket Action ● Aggregate benefits to the interests on one side of an issue ● Per capita benefits for an individual interest ● Alternative means for achieving the benefits The Cost for Nonmarket Action ● Costs of organizing for collective action ● Direct costs of undertaking nonmarket action ● Effectiveness of nonmarket action Effectiveness of Nonmarket Action ● Impact of a given level of nonmarket action on the outcome of an issue ● Depends on: ○ The number of members of an interest group ○ Their geographic distribution ○ Financial resources The Distributive Politics Spreadsheet ● Pertains to a specific alternative, such as: ○ A bill to revoke the tax benefits on foreign leasing, or more generally to a particular change from the status quo ● Organized in terms of the interests that would benefit from the adoption of the alternative ● Intended to summarize rather than substitute for the analysis of the benefits and costs of nonmarket action Nature of Political Competition: WilsonLowi Matrix Institutions and Institutional Officeholders ● An institution provides an arena in which interests deploy their nonmarket strategies ○ The preferences of those who hold offices in the institution can affect the outcome ● Officeholders may support an interest group or work to advance their own policy agendas Moral Determinants of Collective Action ● Moral concerns motivate individuals and groups to take nonmarket action ● Moral concerns can differ among individuals ○ Nonmarket competition can take place on moral dimensions Boeing in a Pickle ● The Economic Recovery Tax Act (ERTA), 1981 passed To stimulate economic activity ○ Ability to “sell” investment tax credit by lossmaking companies ● Prior to ERTA: ○ Many foreign sales were made under lease arrangements designed to capture the investment tax credit ● Foreign leasing inadvertently became an issue because of the way ERTA was written ● Representative J. J. Pickle was determined to eliminate the abuses of ERTA ● Boeing affected by Pickle’s move because it was locked in fierce competition with Airbus Boeing’s Nonmarket Agenda and Objectives ● Choosing an objective is a central component of a nonmarket strategy, and Boeing could pursue the following: 1. Defeat of the Pickle bill 2. An exemption for jobcreating leases consistent with the intent of ERTA 3. An exemption for jobcreating export leases consistent with the intent of ERTA 4. An exemption for its own leases 5. Grandfathering of current orders 6. A phaseout of the tax benefits on foreign leasing Chapter 7: Nonmarket Strategies for Government Arenas Nonmarket Strategy Formulation ● Strategy formulation in the nonmarket environment differs in a number of ways from the market environment ● The process of nonmarket strategy formulation is developed with a focus on strategic assets ● Three basic strategies are presented: ○ Representation strategy ○ Majority building strategy ○ Informational strategy Approach to Nonmarket Strategy Formulation Components of Nonmarket Analysis ● Assessing the characteristics of the issue and where it is in its life cycle. ● Assessing motivations and incentives. ● Identifying the interests affected by the issue. ● Analyzing the likely demand for and supply of nonmarket action. ● Assessing the nature of the politics of the issue. ● Identifying the institutional arenas in which the issue will be addressed. ● Assessing institutional characteristics. ● Identifying the relevant institutional officeholders and their constituent and policy interests. Managers and Nonmarket Strategies ● Unilateral and coalition strategies ○ incentive to free ride ○ heterogeneity of interests ● Nonmarket assets ○ e.g. access to institutional officeholders ● The rent chain: the greater the rents affected by a nonmarket issue, the greater are the incentives to take nonmarket action to obtain or to protect those rents. ● Implementation The Rent Chain Understanding Outcomes ● In formulating a nonmarket strategy to be implemented in an institutional arena: ○ It is helpful to have a theory about how the institution makes decisions ● The median voter theorem is powerful because: ○ It is only necessary to know voters’ ideal points and not their entire preference ordering over alternatives Majority Rule •The median voter theorem: Under majority rule, the most preferred outcome of the median voter prevails. Intensity of Preferences Instability of Outcomes ● Assume elections are between pairs of options. Which policy option prevails? con’t Election A vs. B B vs. C C vs. A X A B A Y B B C Z A C C Outcome? A B C Generic Nonmarket Strategies ● Representation ○ Based on the consequences of alternatives for constituents. ○ Involve the mobilization of a rent chain and may include a grassroots campaign, coalition building, and public advocacy. ● Majority building ○ Focuses on developing the needed votes in a legislature to enact or defeat a bill. ○ Can build on a representation strategy, as when the rent chain is mobilized in districts of pivotal legislators. ● Information provision ○ Focuses on providing info to government officeholders. ○ Can be coupled with representation and majoritybuilding strategies, as when a firm lobbies to provide information in conjunction with a grassroots strategy involving the mobilization of its rent chain. Majority Building Strategy ● Vote recruiting: Votes are recruited by interest groups and by public officeholders. ● Pivotal voters: A vote recruitment strategy focuses on pivotal voters—those most likely to switch the outcome between victory and defeat. ● Multiple pivots, public and private politics, and selfregulation ● Competition and majority building ● Agenda setting Majority Building and Pivotal Voters Informational Strategies ● Based on the superior information an interest group has about the consequences of alternatives for constituents ● Involve providing information favorable to the firm or interest group ● Strategic provision of information is the principal component of: ○ Lobbying ○ Testimony in legislative or regulatory proceedings ○ Public advocacy Public Officeholders as Targets of Nonmarket Strategy ● In public politics, nonmarket strategies are ultimately directed at government officeholders: ○ Who are in a collective decision setting such as a legislature or a regulatory commission ● The interests of officeholders may also depend on career concerns ● When officeholders seek to avoid risk, the status quo is often favored ● An interest that seeks to change the status quo should ○ Focus on reducing uncertainty about the consequences of the change Institutions and Responsiveness Chapter 8: Implementing Nonmarket Strategies in Government Arenas Nature of Political Competition: Wilson Lowi Matrix Lobbying ● Important because of the large number of bills under consideration ● Scope of lobbying has broadened over the past two decades ● Information provided through lobbying must be: ○ Credible ○ Relevant Technical and Political Information ● Technical information Consists of data and predictions about the consequences of alternative policies ● Political information Pertains to the impact of an alternative on the constituents or policy interests of an officeholder Multi Level Lobbying Principles of Effective Lobbying ● Know the institutional arenas in which the issue is addressed ● Look for alignments of interests and explore opportunities to build coalitions ● Time lobbying to the stages of the institutional decisionmaking process ● Target key officeholders ● Know the officeholder’s interests and goals and frame message accordingly ● Make straightforward presentations ● Explore compromises or concessions that might help resolve officeholders’ concerns ● Establish access and maintain continuing relationships for the future Access ● Members of Congress and executive branch officials have only limited time to meet with lobbyists ○ Must allocate access ● The key to continued access is the ability to provide politically valuable resources. Those resources include: ○ Information about the effects of political alternatives on constituents, technical information pertaining to the likely consequences of alternatives, and information about the support that can be mustered for or against an alternative. ○ Electoral support, endorsements, and campaign contributions. Bargaining ● On some nonmarket issues a company or an industry association may engage in explicit or implicit bargaining with: ○ A committee chair in Congress ○ An administrative agency ○ The White House Controls on Lobbying ● The First Amendment to the Constitution establishes the right to petition government ○ Lobbying is a relatively unregulated activity ● The Lobbying Act of 1946 requires that lobbyists register with the Clerk of the House of Representatives and the Secretary of the Senate and report information on their employers & expenditures. ● The Lobbying Disclosure Act of 1995 requires lobbyists to report the fees they receive as well as their expenditures. ○ Lobbyists must file reports on a regular basis listing the issues and bills on which they are lobbying, the positions they support, how long the lobbying is likely to take, and details about how their efforts are funded. Those who lobby the executive branch and Congressional staff members must also register. ● Lobbying Database: http://www.opensecrets.org/lobby/index.php Rules Relating to Lobbying Activity ● Members of the House and Senate and their staffs can receive gifts, only if the gift is worth less than $50. Moreover, member and their staffs cannot receive gift totaling more than $100 from one source in one year. ● Expenses related to “factfinding” trips, meetings or speeches are exception. ● Illegal lobbying? Bribing (or illegal gratuity) a public official in connection to a specific past, current, or future act is a federal crime, often carrying a prison sentence. Electoral Support ● Focuses on providing electorally important resources to candidates ● Unions and some interest groups: ○ Endorse candidates ○ Provide campaign workers ○ Staff getoutthevote campaigns ○ Align with political parties ○ Contribute to campaigns ○ Fund political advertising for and against candidates Election Financing Laws ● Corporations are prohibited by the Tillman Act of 1907 from making contributions to the federal election campaigns of candidates. ● At the federal level, corporations, labor unions, trade and professional associations, and groups of individuals may form multicandidate PACs for the purpose of soliciting contributions and distributing them to candidates or expending them independently in election campaigns. Hard Money Contribution Limits Purposes of Campaign Contributions ● To affect the outcome of elections ● To obtain access to present/future officeholders ● To obtain services Coalition Building ● An important component of many nonmarket strategies ● Principal means of forging a majority from a collection of minorities ● Peak organizations: Emphasize issues that affect more than one industry ● Trade associations: Represent one industry ● Ad hoc coalitions: Tend to be issue specific Grassroot and Constituency Campaigns ● Grassroots campaigns are based on: ○ Connection between constituents and their elected representatives ○ Mobilization is critical: ■ Mobilization involves providing information to stakeholders on the significance of an issue and helping to reduce the costs of participation Business Grassroots Campaign Testimony ● In a regulatory setting, testimony is important because: ○ The information presented can affect regulatory decisions ○ It creates a record that may serve as a basis for judicial review Public Advocacy ● Firms use public advocacy to communicate directly with the public on some issues ○ Particularly those characterized by majoritarian politics Chapter 9: Antitrust: Economics, Law, and Politics Principal Federal Statutes ● The Sherman Act ● The Clayton Act ● The Federal Trade Commission Act ○ These acts are broadly worded, employing such terms as monopolize, restraint of trade, and unfair practices. ○ This has required the courts to interpret the acts in the context of the specifics of individual cases. Excerpts from the Antitrust Statutes Practices Subject to Antitrust Scrutiny ● Horizontal practice Involves activities in the same industry ○ For example, a merger is horizontal if the two firms operate in the same industry ● Vertical practice Involve firms in a supply arrangement or a channel of distribution Government Enforcement of the Antitrust Laws ● Department of Justice (DOJ) and Federal Trade Commission (FTC) have the authority to enforce Sherman and Clayton Acts ● Only the FTC can enforce the Federal Trade Commission Act Private Enforcement of the Antitrust Laws ● Most antitrust cases are the result of private lawsuits ○ Filed by competitors and dealers ● Treble damages are provided by the Clayton Act Per Se Violation and the Rule of Reason ● The courts have held that: ○ There are some sufficiently egregious acts that on the face of it violates the antitrust laws ■ These acts are said to be per se illegal ■ The only defense allowed is that the defendant did not commit the act ● In contrast, other cases are considered by the courts under a rule of reason ○ A restraint of trade is illegal if it is unreasonable Antitrust Thought ● The structural approach (structureconductperformance) ● The Chicago school ● The new IO approach The Structure Conduct Construct Paradigm The Chicago School ● Views the objective of antitrust policy as economic efficiency ○ May be understood in its simplest form as: ■ The maximization of producers’ plus consumers’ surplus ● Skeptical about the nature and scope of barriers to entry ● Views collusion among firms as unsustainable ○ Sustainable when there is government protection ● Views competition as the best means of achieving efficiency The New IO Approach ● Rejects the static equilibrium approach taken by the Chicago school ○ Focuses on the opportunities for strategic behavior not initially considered by the Chicago School ● Concerned with: ○ Potential for anticompetitive behavior in markets characterized by network externalities ○ Where compatibility and standardization are required The Politics of Antitrust ● Antitrust policy has important distributive as well as efficiency consequences for firms and consumers ● Most proposed changes in the antitrust laws fail because of: ○ The intensity of the ensuing politics ○ The complexity of the issues ● Manifests itself in legislative action seeking exemptions or providing for affirmative defenses in antitrust lawsuits Industry Definition ● Industry concentration depends on how we define an industry. ● What defines an industry? What is a relevant market? ○ Products should be close substitutes. ○ Crossprice elasticity should be high. Cross Price Elasticity How does demand react to changes in the price of substitutes, in percentage terms? The higher the crossprice elasticity, the more the two goods compete against each other. Market Definition in the Horizontal Merger Guidelines ● A product and geographic area such that a hypothetical monopolist likely would impose at least a “small but significant and nontransitory” increase in price (SSNIP) ● Relevant Market: The smallest market necessary to satisfy the test. ○ Dedifferent location?r response, i.e. will they switch to a different product or buy from a Applying the Guidelines ● Start with narrow definition of each individual product (or area). ● If a SSNIP would cause enough consumers to switch that the SSNIP would be unprofitable, then firm does not have sufficient market power to raise price. ● Include the next best substitute. (We are effectively testing crossprice elasticity.) ● Keep going until the point is reached where a hypothetical monopolist could profitably impose a 5% price increase. Nontransitory usually means 12 months. ● Market then defined. Industry Concentration ● How to measure the degree of concentration in an industry? ○ Number of firms? ○ Heterogeneous firms? Concentration Ratio ● The mfirm concentration ratio is the share (percent) of total industry sales accounted for by the m largest firms. ● Concentration Ratios ○ C4 = S + 1 + 2 + 3 4 ○ C8 = S + 1 + 2.. + S 8 Concentration Ratio Concentration Curves for X and Y HerfindahlHirshman Index In 1992 the Antitrust Division of the Justice Department and the Federal Trade Commission issued new guidelines concerning their policy toward mergers (subsequently updated in 1997 and 2010). These guidelines are expressed in terms of the HHI. ● HHI = ΣS for ill firms in the industry (i: firm i’s percentage share of total industry sales) ● Ranges from 0 to 10,000 HHI = 0 for a perfectly competitive industry HHI = 10,000 for a monopoly ● What is HHI for Industry X? ● What is HHI for Industry Y? ● Which industry is more likely to exhibit competitive behavior? Concentration with Equal Sized Firms # Firms C4 C8 HHI 1 100% 100% 10,000 2 100% 100% 5,000 3 100% 100% 3,333 4 100% 100% 2,500 5 80% 100% 2,000 6 66% 100% 1,666 7 57% 100% 1,428 8 50% 100% 1,250 9 44% 89% 1,111 10 40% 80% 1,000 Concentration and Social Harm Merger Guidelines Example: The Widget Industry Industry Concentration ● Why are some industries more concentrated than others? ● Scale economies: the magnitude of economies of scale relative to total market demand ● Entry conditions: the ease with which entry can take place
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