Exam 1 (Topics 1-3) Flashcards
BP made 2 strategic acquisitions, who?
- Arco and Solarex
- Solarex acquisition made BP the largest solar energy company in the world
- Arco made the BP the largest oil and gas recovery company in the world
Corporate Social Strategy
- Integrate non-market forces (political, economic, social, and technological into your market strategy (look for non-market opportunities to exploit)
- Competition tends to school managers to think in terms of outcomes (profit, sales, market share, etc)
- However in interactions with non-market players, processes become more important (oversight, social reputation)
PEST Framework
Political, economic, social, and technological factors help determine firm and market strategy and when non-market strategy is added to this, produces Integrated Corporate Social Strategy
BP’s Non-Market Integration
BP launched the Beyond Petroleum campaign and began rebranding
Do customers care about the brand of oil and gas?
Gas is a commodity, price and convenience are most important for customers HOWEVER, and enhanced corporate brand will differentiate from competitors and lead to more franchise options
Do employees care about where they work?
To be #1 energy company in the world, you have to recruit and retain the brightest engineers and scientists (want to work for industry leader)
Do investors care about who they invest in?
SRI (socially responsible investors) care and want high returns with no guilt (Oil & gas has high returns but also high guilt (environmental degradation and climate change), Beyond Petroleum branding helps to remove guilt
Are policy makers concerned about corporate reputations?
Industry leaders not only influence if new policy is written but also shape how it is written
- IF: proactive self-regulation can preempt need for regulation
- HOW: Industry leaders give testimony on new regulation feasibility
Beyond Petroleum Risks
- Heightened public expectations (especially from NGOs)
- Greenpeace gave BP the Greenwash of the Year award
- 45 mil spent on Solarex, 26.5 bil spent on Arco (588 times more and 207 mil spent on rebranding)
Beyond Petroleum - theory
BP found an avenue to create “shared value” by integrating societal concerns over fossil fuels with their core market strategy
Social Regulators (and Market Efficiency)
- NGOs usually take political or direct action when market inefficiencies exist (when outcome is not socially efficient)
- Public policy changes can either correct existing inefficiency or it can be the cause of inefficiency
Socially efficient production level
- Produce and sell product that consumers value more than the costs of production
- Avoid producing and selling product that consumers value less than the costs of production
- Socially efficient and profit maximizing can be very different
Demand is based on…
- The value to customers
- Consumer surplus: Difference between what customers are willing to pay and the price they have to pay (represents consumer behavior)
Supply is based on…
- The cost to producers
- Producer surplus: Difference between the price sellers receive and the minimum supply price needed to cover costs
Social efficiency occurs at…
The market equilibrium if all costs and value are accounted for in the D&S curves
Market price will be efficient if…
Reflects true cost & value in society
Producing below the socially efficient quantity…
You are giving up producing some units that are valued more than their productive costs
Producing beyond socially efficient quantity…
You are producing in a range where the units are above consumer value
Effect of taxes on sellers
Cause an inward shift of the supply curve (decreased supply); taxes on sellers raise the costs of production
General results of a tax: (5)
1) Government revenue collected
2) Increased prices to buyers - consumer surplus decreases
3) Decreased prices to sellers - producer surplus decreases keep less in their pocket
4) Reduced quantity bought and sold
5) Taxes are efficiently enhancing in markets tht are over-producing relative to Qe
Subsidies given to sellers cause:
anotward shift of the supply curve (increase supply) and lower the costs of production (incentivize increasing sales)
General results of a subsidy:
1) Decreased prices to buyers (consumer surplus increases)
2) Increased prices to sellers (producer surplus increases)
3) Increased quantity bought and sold
4) Subsidies are efficiency enhancing in markets that are under-producing relative to Qe
Productive regulation on sellers cause:
an inward shift of the supply curve (decreased supply) which is a burden on sellers –> high operating costs
General results of a productive regulation:
1) Increased prices to buyers (consumer surplus decreases)
2) Decreased prices to sellers (producer surplus decreases)
3) Reduced quantity bought and sold
4) Productive regulations are efficiently enhancing in markets that are overproducing
5) No government revenue
Voters are assumed to be:
- Rationally ignorant
- Benefit of being knowledgeable is lower than the cost
Politicians are assumed to be:
Vote-maximizers, regardless of motivation, their ultimate goal is to be elected so they provide as much information to voters at no charge
Bureaucrats (civil servants) are assumed to be:
Budget-Maximizers, they are not elected but are hired and seek bigger budgets to achieve promotions, higher pay, prestige, job security
