Term
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Definition
A government’s direct influence on the social and economic activity of a society through its ability to pass rules and make laws.
Republicans favor less reg to protect profits
Democrats favor more reg to protect consumers |
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Term
| NPR: Treasury Chief complains about excess regulation |
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Definition
Paulson US treasury wants less reg.
Slows innovation, creates needless costs, stifles job creation & competition
Foreign co's don't have to comply with regs unless trade in US
US is calling for more reg since 2006-- after subprime mortgages and economic meltdown |
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Term
| Regulation-- Commerce clause |
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Definition
1.) Commerce Clause: allows congress complete control over all commerce (internal and external)
~Barriers to entry = High fixed costs~
EX.)
Railroads primary forms of transportation-- once barriers of entry met, cheap to operate
Railroads got together and "fixed" prices rather than compete with one another
*Gov't action: Interstate Commerce Act = Interstate Commerce Commission-- BANNED price discrimination/pooling/fixing |
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Term
| Regulation: Early 20th C. |
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Definition
Upton Sinclair-- Jungle: Meat pkg regulation/ industry exposure
Teddy Roosevelt-- Pure Food & Drug Act: Reg. on food/drugs
Woodrow Wilson-- Clayton Act, Curbing monopolies,
Federal Trade Commission
*Increased Regulation of all industries |
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Term
| FDR, THE GREAT DEPRESSION & THE NEW DEAL |
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Definition
under-regulated financial markets contributed to the conditions which caused the Great Depression.
Securities Act 1933-- Reg Stock Mrkt
Securities & Exchange Act 1934-- Publicly Traded Co's, Investors had right to know what's going on
Banking Act 1933-- created FDIC: Confidence in ordinary people to put money in banks
Norris-LaGuardia Act 1932-- UNIONS
Wagner Act 1935 |
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Term
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Definition
Cyclical shifts in reg.
'50s less reg
'60s-'70s More government regulation (EPA, Civil Rights Acts, OSHA, Consumer Product Safety Act)
Late 1970s-90s De-Regulations (of airlines, trucking industry, phone system)
2000+ Greater reg of fin. mrkts & scrutiny or internal corp conduct eg. Sarbanes-Oxley-- response to Enron scandals |
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Term
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Definition
Market Failures occur gov't subs its judgement for that of marketplace: price-setting, capital expansion, quality of service/goods etc
ex. Gov't reg on railroads price fixing |
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Term
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Definition
Intended to protect consumers or public
ex. Consumer product safety commission
Pension benefit guarantee trust |
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Term
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Definition
Concern for public welfare thru: production, working conditions, pollution reg = better quality of life for all
sometimes gov't can effectively kill off a business
Reasons:
1. Inadequate info
ex. product labeling
2. socially desirable G/S
ex. avoiding tragedy of commons, limiting ocean fishing areas
3. protecting individual rights & privacy
ex. better working conditions, medical privacy, internet privacy
4. consumer safety
ex. airline & truckin-- b/c little spending on safety to increase profits, might harm public welfare
5. reg to benefit special groups
ex. American w/disabilities act
family & medical leave act
6. Externalities |
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Term
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Definition
Social costs to public welfare= pollution
Three choices:
1. pay for costs
2. step in & tell co to pay
3. order co to pass costs on to consumers
ex. EU ordered airlines to pay tax on carbon emmissions
ISSUE: Global Warming
Successes: Bans on lead gas, CFC, PCB |
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Term
| Externalitites: Cap & Trade |
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Definition
| Each company allocated certain amt of pollution-- if a co didn't use all amt could sell excess to less efficient co's |
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Term
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Definition
1. natural monopoly- gov't reg necessary to prevent anticompetition & protect consumers (prices)
2. Destructive Competition- anti-trust policy
3. Fiscal policy- taxation & spending to stimulate economy OR change purchasing patterns
4. Market Imperfections- ex. subprime mortgages mess |
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Term
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Definition
1. Create new mrkt
2. Advantage of Size-
3. Level Playing field
4. Control Entry
5. Subsidies- gov't gives co's money
6. Pre-emption protects biz |
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Term
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Definition
1. Prohibition
2. Safety Standards on imported Goods
3. Export controls
ex. Export Admin Act: regs what product US can export
4. Tariffs
ex. Protects local industry/jobs
anti-dumping measures
"countervailing tariffs": gov't subsidizes production cost
ex Seattle gave Boeing tax break to remain in Seattle
~Quotas: Limit number of products country will allow to be imported-- protects US industries |
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Term
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Definition
~All regs create winners(benefit from) and losers(pay for benefits created)
regs costs money
1. business lose money to regs
OR
2. Business pass on costs to consumers |
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Term
| Economic Direct Costs of reg |
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Definition
1. Additional gov't employees= higher taxes
ex. Clinton Health care prgm: Lots of $ for bureaucracy
Nat'l highway transport: too little $ to examine
Safety Agency: exploding tires
2. Inspections cost biz time and $
3. compliance: reg may direct co. to do somthing one way that may be more costly than alt method currently using. |
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Term
| Economic Indirect costs of reg |
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Definition
ex. time, paperwork, filing, stress etc.
*Small biz bear disproportionate cost of dealing w/Fed & State regs. |
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Term
De-regulation: 1970s-80s
4 major forms
1. Abolishing Reg in specific industires |
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Definition
a) Airline industry: was de-regulated now ppl can afford to travel, created more jobs, broke up monopoly
b) trucking industry:Fed wants to reg b/c of fatal accidents due to lack of reg b/c workers get paid per mile not per hour. "weekend off rule" |
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Term
De-regulation: 1970s-80s
4 major forms
#2- Imposing Cost Benefit Analysis |
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Definition
Regan & Clinton Admins
Utilitarian-- Jeremy Bentham
Reg Tradeoffs concern "good" regs bring to society rather than harm it brings to profits/jobs
CBA (Congressional Budget analysis) Requires monetary value be placed on costs & benefits of a reg. |
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Term
De-regulation: 1970s-80s
4 major forms
#3 Reduce $$ available to enforcement agencies (Starve the Beast) "Back door deregs" |
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Definition
Ex. Mine inspection safety underfunded by BUSH
Recall "Bier than enron" SEC was threatened by congress if it pursued reforms that adversely affected acctg. industry |
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Term
De-regulation: 1970s-80s
4 major forms
#4 Putting industry insiders in charge of reg industry "fox to guard chicken coop" |
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Definition
| 60 Minutes-- Global Warming Restrictions "political screenings" |
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Term
| Reg Efficiency- The cost of a marginal gain is high |
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Definition
| Government needs to recognize the law of diminishing returns, e.g., getting the last bit of a chemical out of drinking water is exceedingly expensive, and would result in only marginal benefits. |
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Term
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Definition
Reagan and Clinton both required federal regulatory agencies to write a REGULATORY IMPACT ANALYSIS for major new rules that had a predicted annual impact of more than $100 million.
REIs have three components
1.A statement of the need for the rule
2.An examination of alternative approaches (other than the rule)
3.An evaluation of the benefits and costs of the rule, and the alternatives |
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Term
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Definition
Congress has pwr to make new laws, but has trouble ridding of old/bad laws
ex. Mining Act 1872
Requires Fed to sell public land for $2-$5
An acre of ore is discovered... made sense 30yrs ago, not today
Clinton sold ore land worth $1B for $275M |
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Term
| Reduce Command & Control in favor of incentive controls |
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Definition
general rule: What & how an industry must do something. Specific "do it this way"
-- need to meet a particular result |
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Term
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Definition
Shifts gov't fxns--> private biz; may be able to do the same job more efficiently
ex. private prisons, garbage collection, towing |
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Term
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Definition
Statues/Rules/Laws that self destruct in X years. Forced to revisit/review & edit
ex. sometimes things backfire-- Bush's tax cuts have sunset provisions |
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Term
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Definition
1. Rules of capitalism: preserve competition
2. Engine of free enterprise is competition. Keeps numerous sellers for numerous buyers. Those w/best G/S win.
3. Sometimes competition fails b/c private co's force out competitors
4. Historical perspective: NO TRUSTS-- Ex. Standard Oil.. therefore anti-trust laws created. |
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Term
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Definition
Baseball
labor unions (collective bargaining)
Agricultural Co-Ops (pool products)
Export services of US co's (Ex-Import Banks)
Insurance Biz Reg by States (b/c states limit pricing) |
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Term
| Enforcing Anti-Trust Laws |
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Definition
1. Justice Dept can file civil/criminal case to prohibit conduct
2. Fed Trade Commission can enforce thru investigation: only file civil suits
3. Attorney Generals, provided states have A.T Laws, can file cases-- NYCs Elliot Spitzer most active
4. Private Parties can sue in Fed Ct. for injunction of relief and treble damages
TEST Party Must
1. A.T. actions caused injury suffered
2. Unlawful actions by accused violated A.T. laws protecting injured party |
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Term
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Definition
I: Every contract in restraint of trade/commerce is illegal
Restraint on Trade must be unreasonable
Trigger "contract", "combination", "conspiracy" without these there is no violation. Must be acting together in conscious effort. |
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Term
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Definition
only unreasonable restraints of trade violate Section 1. Courts examine the following factors in applying the rule of reason:
1.Pro & anticompetitive effects of restraint
2.Competitive structure of industry
3. Firm's market share or power
4. History and duration of restraint
5. Other relevant factors |
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Term
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Definition
These actions are inherently illegal under the antitrust laws; the court won’t apply the rule of reason because the violations are so obvious.
Horizontal-- Agreements btwn competing firms
Vertical-- One firm controls all aspects of product/design/sales
OR Multiple firms involved in conspiracy
*Standard oil controlled both forms |
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Term
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Definition
1. Horizontal- Restraints of trade: price fixing, bid rigging, market divisions
2. Group boycotts- agreements to refuse to deal w/person or firm
3. "trade associations" problematic: Rule of Reason Applies
ex. Railroad working to demote airways/trucking transport
4. "joint ventures" -- Ford-Mazda: how economies of scale might be anti-competitive |
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Term
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Definition
A tying arrangement is defined as the conditioning of the sale of one product on the buyer’s purchase of another product. Tying arrangements can be challenged under S/1of the Sherman Act, S/5 of the Clayton Act.
1. Most common form – occurs where a seller has market power with respect to the tying product and can use this to leverage increased sales of the tied product |
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Term
| Three Part TEST to unlawful tying |
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Definition
1. Two SEPARATE products--
2. Seller has sufficient mrkt pwr of tying product to force sales of tied product
3. Impact on commerce/competition |
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Term
| Vertical Restraints on Trade |
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Definition
Vertical trade restraints involve the distribution of goods and arise from agreements made between firms at different levels of the distribution process.
1.Resale Price Maintenance Agreements
In 2007 the Supreme Court changed the rules:
2.Territorial or Customer Restrictions (Rule of Reason)
manufacturer only selling its products to
one retailer in a geographic area, to protect that
retailer from competition.
Note: A company MAY decide NOT to sell its good to
A particular retailer if it wants.
Louis Vuitton or Porsche may NOT feel good about
selling their goods through… Macy's, Wal-mart etc. |
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Term
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Definition
– The ability to control, or set the price, or to prevent others from entering the business.
NOT ILLEGAL IF:
1.Historic accident
2.Natural monopoly
--One company expands quickly, realizing economies of scale which reduce per-unit costs, which attract more consumers.
3.Business acumen
Ex. Patenting a product / Drugs are a good example.
4.Superior product
Ex. Ipod & Itunes (dominant in the MP3 and online music markets) |
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Term
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Definition
Sherman Act section II:
--Illegal FELONY for persons who monopolize, combine, conspire w/others to monopolize an industry & affect commerce/competition |
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Term
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Definition
1. Possession of Monopoly in RELEVANT MARKET
*KEY: Define Relevant Mrkt (product/geo. mrkts) to determine MARKET POWER: ability to control product mrkt price or exclude others
2. Willful acquisition/maintenance of power |
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Term
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Definition
1.Realistic substitutes, which consumers may choose, are included.
Ex: Dupont Case
Cellophane is interchangeable with other plastic wraps, so even though it had a monopoly in cellophane, it does not have a monopoly in “wrappers.”
2.The Geographic Market: Is the market local? National? International? (Baked goods vs. jumbo jets)
3.The Existing and Potential Competitors
--This includes hypothetical competitors that could enter the market, if prices rise too much. But consider: barriers to entry. |
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Term
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Definition
| Market share is the firm’s fractional share of the total relevant product and geographic market: mergers that allow the surviving company 20%+ are viewed skeptically. |
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Term
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Definition
1. Intent is Key
2.Inferences: did firm's actions make economic sense?
ex. selling below cost in only one geo. mrkt doesn't make sense-- only to drive out local competition |
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Term
| Fair Monopolies must watch out for... |
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Definition
1. Local Phone companies-- must not require customers to purchase phones from them
2. w/out sound justification-- attempts to raise barriers to entry or costs of rival competitors or deprive them of customers |
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Term
Predatory Pricing
*Sign of monopolistic power* |
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Definition
Pricing a product below cost
1. can lead to monopoly power by driving competitors out, and barring new entrants to the field;
2. danger is that eventually a company will achieve a monopoly, and then raise prices for all consumers |
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Term
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Definition
Looks to potential future problems and tries to prevent them NOW
1.Tying/Exclusive dealing illegal
2.prohibits certain acquisitions
3.Bans mergers where in any line of commerce the effects may substantially lessen competition or create monopoly |
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Term
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Definition
| Owning all products w/in a category |
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Term
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Definition
| Owning all facets of production, design, delivery, manu etc. |
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Term
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Definition
Most business in America is conducted by corporations.
Corporations are recognized, in law, as a legal person.
same rights as people including:
Equal Protection;
access to courts,
due process,
freedom against unreasonable searches;
freedom of speech--including political, which includes campaign contributions.
*KEY: STOCK OWNERS HAVE NO PERSONAL LIABILITY* |
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Term
CORPORATIONS GOVERNED:
--Internal Regulation |
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Definition
Paper: Sharholders -->BoD --> Executives
Reality: Executives--> BoD --> Shareholders
(Inverted Triangle) |
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Term
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Definition
States give legal charters
usually choose Delaware because of its highly evolved law on corporations, and the fact that Delaware law is business-friendly. |
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Term
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Definition
Own the corporation
Individuals, pension funds, mutual funds, and even other companies buy stock in other companies
“ownership” interest in the company is based upon a belief that the company will makes profits and, as a result, become more valuable (its share price will increase) and/or it will pay dividends (money representing the profits earned by the company) to stockholders.
*Sometimes S.H. short term interest cloud long term success |
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Term
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Definition
| FIDUCIARY duty is to clients-- make them profits |
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Term
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Definition
One Vote-- buy more, hold, or sell
Tom Friedman,"The World is Flat" -- ELECTRONIC HEARD: meaning capital will move quickly to where its owner perceives the best possibilities exist for the greatest return. |
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Term
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Definition
1.Dividends
2.Vote on: BoD, Mergers/Acquisitions, Charter/rule changes
3.Receive Annual Reports
4. Bring Suits against co. and officers
5. Sell shares of stock
Long-term owners; evals BoD; make INFORMED decisions |
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Term
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Definition
Shareholder's derivative suits-- File lawsuits against BoD when Board adversely affect company
ex. pension funds, mutual funds etc.
CalPERS leader in gov't activism tries to influence BoD decisions |
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Term
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Definition
Often CEO is chairmen of Board therefore sets own salary & hiring....
Pay combo of:
1. Base Salary
2. Annual Bonuses-- performance related
3. Long Term Bonus
4. Restricted Stock-- "special" grants
5. Stock Options |
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Term
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Definition
Governs Co.
"outside directors" ratio of 4 to 1--- avg. 11 members
Acts by majority rule-- individuals can not influence much
RESPONSIBILITIES:
-appt/remove corp. officers + set compensation
-Financial decisions: dividends, buy-backs etc.
-Major policy decisions
-Consider how decisions will affect community, outsiders etc. |
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Term
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Definition
1. Compensation Committee
Dominated by CEO-- decides what to pay CEO, use consultants
2. Audit Committee
Monitors fiscal well being of company |
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Term
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Definition
CRITICISMS
a. Rubber Stamp: BoD too allied w/CEO/MGMT
b. BoD Dominated by CEO-- corrupt
c. Conflict of interest--
d. Fiduciary Duty to stockholders
SOLUTIONS
1. Limit # "inside" Directors
2. Find Members not associated w/CEO:spouse, parent, sibling
3. Avoid co. consultants
4. Find people not affiliated w/consumers or suppliers |
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Term
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Definition
External Audit Regulation
The New York Stock Exchange:
Companies listed on the Exchange (NASDAQ, too) are required to follow rules, imposed by the exchange, on publicly held companies. |
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Term
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Definition
Boss can fire you for any reason BUT:
1.Breaches the duty of good faith and fair dealing
--e.g. transferring an employee to a far-flung location, knowing they won’t do it, so employee quits rather than the boss firing them.
2.Breaches an employment contract
3.Violation of public policy
--race, sex, national origin, age, or any other “protected status” discussed herein.
a.Jury Duty
b.called to service
c. whistleblowers |
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Term
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Definition
1.Arrest data – illegal to use this, unless a conviction followed. Why?
2.Credit history – often governed by state law, protecting applicant.
3.Workers compensation claims – employers look, to root out fraud.
4.Facebook/Myspace- no problelm
5.Lie Detector Test-illegal except for gov't
6.Drug testing- legal depends on state laws 2/3 co's test
Pre-employment, random checks, testing for cause |
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Term
| Monitoring Job Performance |
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Definition
| No Federal law prevents employers from monitoring your work on computers at work. |
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Term
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Definition
Problem b/c if romance goes sour lower employee can file sexual harassment
require employees not work for one another |
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Term
Workers Compensation
Two Part TEST |
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Definition
Strict liability system: employees file claims w/admin agency
TEST
1. What injury accidental?
2. Did injury arise our of employment?
subject to judicial review |
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Term
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Definition
| Require employers to inform employees of dangers at work |
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Term
| Right to health and safety |
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Definition
6M workers injured or ill each year b/c of work
Injury prone industries:
1. Metals
2.Food
3. Rubber
4. Air Transport
OSHA (Occupational Safety & Health Assoc.) cut death rate in half |
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Term
| Title VII "protected Classes" |
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Definition
It is unlawful for employers to discriminate against employees, applicants, and union members on the basis of race, color, national origin, religion, or gender at any stage of employment.
ex. A&F "White Male Image" conspiracy
Prior to Title VII action, must file complaint w/ the Equal Employment Opportunity Commission (EEOC) if they decline to sue they will issue RIGHT TO SUE letter who can file private action |
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Term
| Back Pay & Reasonable Attorneys' fees |
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Definition
| incentive for private attorneys to take these cases; without it, few employers would be able to afford to start one of these lawsuits. |
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Term
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Definition
Intentional Discrimination
Plaintiffs must demonstrate "Burden of proof"--preponderance of evidence; more likely than not
1.member of protected class
2. applied for and qualified for position
3. Denied position
4. Employer con't looking/hired another who was not in protected class
DEFENSE: hired more qualified person-- AT SAME TIME
OR
Bono fide occupational qualifications (Hooters) |
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Term
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Definition
Non-intentional—seemingly neutral policy
ex. jump for an 'A'
must demonstrate a "Casual LINK" btwn practice & imbalance
ex. police officers in upper white class neighborhood |
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Term
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Definition
1. Merit: OKay if ppl work harder/better employees
2. Seniority: Duration of time w/a co.
3. Bona Fide Occupational Qualification: Same gender workers in health club locker rooms |
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Term
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Definition
1. Title VII covers women
2. Title VII struck down "protective legislation"-- some jobs too dangerous for women |
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Term
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Definition
This For that
sex/favors for money/raise |
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Term
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Definition
When actions interfere w/employee's performance or create intimidating work environment
covers and aids whitstleblowers |
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Term
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Definition
NO state or fed rule that says co. must provide health care
gov't funded for poor children and those over 67 |
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Term
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Definition
Employees can not discriminate against religion BUT
Religious Groups can give preference to same religion
TEST:
employers required to make REASONABLE ACCOMMODATIONS so long as do not cause UNDUE HARDSHIP on employer |
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Term
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Definition
Covers employers w/over 20 employees & workers btwn 40-70yrs are covered
Must prove disparate impact |
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Term
EQUAL PAY FOR EQUAL WORK
TEST |
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Definition
File a claim:
Prove same job CLASSIFICATION:
1.equal skill/experience
2. equal effort-mental/physical
3. equal responsibility-supervision/accountability
4. Similar working conditions- Dangers/exposures
Employer can refute w/any reason other than GENDER |
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Term
| GAY. LESBIAN. BI. Transgender.... |
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Definition
No fed protection
therefore "at will" depends on state/local laws
WA State bans discrimination against G/L/B/T |
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Term
| Americans w/Disabilities Act |
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Definition
Applies to Co's w/15+ employees
employer must make REASONABLE ACCOMMODATIONS and not be caused UNDUE HARDSHIP
DISABLED IF:
1.Physical/Mental impairment that limits major life activities
2. Record of impairment
3. regarded as having impairment |
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