VIEWS: 6 PAGES: 12 POSTED ON: 2/12/2012
1. McDonald’s and P&G selling in different nations • Selling different products – Lose production economies of scale • Spreading fixed costs • Purchasing economies • Transportation economies • Inventories • Brand names – McDonald’s -- same brand name, take advantage of umbrella branding • Consumers infer product quality from brand name – Procter and Gamble -- different brand names, unable to take advantage of umbrella branding 2. Poletown case • Background to case – New site needed, Poletown only site in Detroit, heavily populated – City, UAW in favor of Poletown, residents opposed – $200 million for Poletown site vs $65-80 million for alternative site • Stockholders -- fiduciary responsibility – Midwestern alternative • Stakeholders -- non-fiduciary, moral responsibility – Includes stockholders, community, employees, suppliers, alternative community, customers • Likely locate in Poletown • Same conclusion – If survival of company at risk – If satisfying stakeholders in best interests of stockholders (increases value) • Your choice -- depends on strength of argument 3. Dixieland Bottlers/Big Dog • Transfer pricing -- Big Dog better off if it acquires Dixieland and can increase price that Dixieland pays? • Opportunity cost -- best use of Big Dog’s Resources? • Vertical integration vs. market transaction – Vertical integration • Reduce transactions costs (but already lifetime contract) • Increase coordination • Reduce leakage of private information – Market transaction • Reduce agency costs • Reduce influence costs • Although Dixieland pays less for Big Dog products, market share same as nationwide 4. Developing Countries’ Demand for Specific Assets • Increase demand for specific assets, more vertical integration – Underdeveloped court system and contract law – Economies of scale 5. Patterns in many industries • A) Small firms outsource production – Less able to achieve economies of scale and learning economies • B) Standardized inputs outsourced, tailor- made not outsourced – Standardized inputs -- less asset specificity • Little risk of opportunism -- lower transactions costs • More opportunity for economies of scale – Tailor-made -- just the reverse 6. Diversification to diversify managerial risk (Ch 3-5) • Agency considerations -- difficult to measure divisional performance – Product diversification increases agent’s opportunity for hidden information and hidden action (asymmetric information) • Risk attached to investment in relationship- specific assets • Shareholders spread risk – If shareholder owns large block of stock, can’t sell without affecting stock price – Diversification resulting from internal development reduces risk by reducing asymmetric information – Diversified firms less likely to go bankrupt (all or nothing) – Economies of scope reduce risk 7. Holdup problem related to relationship-specific assets • Fundamental transformation with relationship-specific assets • Opportunity cost -- redeploying a specific asset reduces its value – Quasi-rents can be transferred to trading partner
"1. McDonalds and P_amp;G selling in different nations"