Chapter 5

1. Chapter 5 Big Business & Small Business

2. Movie You’ve Got Mail

3. Discussion Questions (1) • In the movie, what special services did Cathleen Kelly’s “Bookstore Round the Corner” provide but Joe Fox’ chain bookstore didn’t? • Why was Fox chain bookstore able to put Bookstore Round the Corner out of business? • Will online bookstores like Amazon.com further wipe out small bookstores? Explain. • Would you like to work for a big business or a small business?

4. Discussion Questions (2) • How do small businesses fight back in the face of big competitors? Do they get any help? • Based on your reading materials, tell the merits of big business and small business, respectively. • Research on anti-trust lawsuits that Microsoft has been involved in both the US and Europe. Describe briefly. • Tell other anti-trust and monopoly cases you know.

5. Big businesses prosper because of: • Long business hours • Strong brand, advertising, marketing, and promotion • Cheaper prices • A draw for depressed neighborhood to attract shoppers and increase tax revenue • Consistency in store layout, products available, product quality throughout the chain • More variety of products, allowing people to have more time for life other than shopping routines • Impersonality that is valued by tired souls

6. Small businesses thrive because of: • The personal touch: shopping assistant on first-name basis with customer; experience/advice in helping customers find exactly what they want; thereby providing customers with a shopping “experience” • Serving a niche market the big guys can’t match; providing services that the behemoths are incapable of • Selling high-end products • Being close to home and convenient; local knowledge and network of friends/families who are also customers • Enjoying the Long Tail

7. Kathleen: Well, Streat Field. Well, Streat Field wrote Ballet Shoes, and Skating Shoes, and Theatre Shoes, and Dancing Shoes and…I’d start with Ballet Shoes first, it’s my favorite. Although Skating Shoes is completely wonderful. And it’s out of print.

8. We rely on big and small businesses for different things, and both are finding a place in the economy. • In the small business, you trust the individual. And in the large business you trust the brand.

11. Online business figures • Online business started in 1994 • The whole world’s online business was valued at $2.3billion in 1996 .It was $25billion in 1997, $50billion in 1998. • In 2000,online business accounted for 15% of all trade, and this will increase to 1/3 in 2010 • According to US Consumer Product Safety Commission, US online sales increased from $47.8 billion in 2002 to 130.3 billion in 2006.

12. Online business, a threat to both? • They offer a big variety, cheap price, convenience, easy payment, impersonality, 7/24 business hours • Shopping online is high tech, young, and “in” • Amazon.com advices readers on what to read by recommending booklists based on past purchases, critic’s reviews, reviews submitted by those who have purchased the book. It is able to locate out-of-print books. It enables purchase in the comfort of one’s home. • You can buy things unavailable in the local market • You can shop in your pajamas.

13. Why do businesses want to grow bigger? Remember this equation: Profit = Price- Cost Businesses increase profits by either raising the price or cutting the cost

14. To increase the price, businesses have to: • grow big enough to become monopolies in the market • or to offer goods/services that are different from competitors (not a concern in this discussion)

15. To cut the cost, businesses have to : • Be big enough so as to purchase raw materials in huge bulks at lower prices • Be big enough to achieve economy of scale (the learning curve effect) • Be big enough to dominate the market and squeeze out the profits reserved for wholesalers and retailers

16. There are other reasons why businesses want to grow bigger: • The over-expanding ego of either the owner or the manager • To obtain preferential treatment from the government • To maintain the stock price (No growth, down-turning price)

17. 10 Ways to Grow Your Business • Open another location. • Offer your business as a franchise or business opportunity. • License your product. • Form an alliance. • Diversity. • Target other markets. • Win a government contract. • Merge with or acquire another business. • Expand globally. • Expand to the Internet.

18. Why do small businesses exist in spite of threat from big ones? • There are always people who want to be their own bosses. • Government nurtures small business because they bring about competition, and competition drives prices down, and consumers profit. • The Western weakness for the small and insignificant: educated people vote for independent or the weaker candidates

19. Sometimes the large is afraid of the small

20. Big or Small, Who is Better at Innovation? • Traditional belief: small businesses start because they have some new ideas to which big businesses are too conceited to pay attention • Another school believes that nowadays innovation comes at the expense of years of research and development of which only big businesses are financially capable

21. Monopoly (merits) • More cost effective for the society in general (e.g. one airport instead of several in a medium-sized city) • Uniform standard (e.g. one mobile standard instead of many, so that phone users can call each other without difficulty)

22. Monopoly (demerits) • reduce economic efficiency • obstruct fair competition • hinder technical advancement • jeopardize the interests of the consumers

23. Types of Monopoly • Price-fixing • Bundling • Exclusive dealings • Group boycotts

24. 香奈尔他们一勾结，化妆品就这么贵 • 全球13家顶级化妆品制造商串通控制定价，法国竞争委员会罚款4620万欧元（4.358亿元人民币）（2006年3月16日） • “价格警察”控制售价：要分销商保证所有产品在所有商店都以同一个价格出售。因此各店之间无竞争可言。 • 厂商经常派人到店里检查售价，如果发现售价偏低，就切断货源。

25. Fines Imposed • Chanel: 3,000,000 euro • Hermes: 410,000 euro • Givenchy: 550,000 euro • Guerlain: 1,700,000 euro • Kenzo: 600,000 euro • Shiseido France: 340,000 euro • YSL: 1,800,000 euro • ELCO (Clinique & Estee Lauder): 1,600,000 euro

26. Structure and development of antitrust laws in the US • Sherman act (1890)：outlawed “combination or conspiracy in restraint of trade” • Clayton act (1914): clarify and strengthen the Sherman act, outlawed bundling contracts, price discrimination, directorates,mergers formed by acquiring common stock of competitors • Federal Trade Commission(FTC, 1914) • Robinson-Patman Act (1936)

27. Antitrust Laws Elsewhere • Japan: Act Concerning Prohibition of Private Monopolies and Maintenance of Free Trade (1947) • Britain: Anti-restrictive Trade Practice Law (1948) • German: Act Against Constraining of Competition (1957) • Belgium: Anti-Economic Right Abusing Law(1966) • Spain: Competition Protection Law(1967) Consumer Protection Law (1984) • China: Anti-trust Law (August 1st, 2008)

28. 目前中国针对垄断的三大热点 • 国内垄断性行业危害公共利益 • 行政性垄断特别是地区封锁和地方保护主义 • 外资并购国内企业 • （中国政法大学研究生院副院长李曙光）

29. 商务部启动反垄断调查第一案法国SEB并购苏泊尔是否越线？商务部启动反垄断调查第一案法国SEB并购苏泊尔是否越线？ • 商务部于2006年9月8日实施《外国投资者并购中国境内企业规定》。其第五章“反垄断审查”中明确界定了四条底线：并购一方当事人当年在中国市场营业额超过15亿元人民币；一年内并购国内关联企业累计超过10个；并购一方当事人在中国的市场占有率已达到20%；并购导致并购当事人一方在中国的市场占有率达到25% • 苏泊尔市场占有率是41.08%

30. Jamas Gosling , “The father of java”, once said, “There’re two ways in business, one is making a small cake then take most, the other is making a big one then a small part will be enough. I think the latter is better. That is why Sun always feel lucky for having competitors such as IBM and BEA when Microsoft always want to corner the market”

31. Why is Microsoft always targeted? Free software Open source withholding the technical information needed by rivals to make their software work smoothly with the Windows operating system

32. Why is Microsoft always targeted? Bundling new products while selling Windows operating system

33. Timeline of Anti-trust case against Microsoft in the US (1) • October 1997, the Justice Department sued Microsoft, accusing it of requiring computer makers to install its Internet Explorer browser. • December 1997, Judge Jackson issued a preliminary injunction barring Microsoft from requiring computer makers to install Internet Explorer. • June 2000, Judge Jackson issued his final ruling, ordering that Microsoft be split into two companies. Soon, Microsoft filed its appeal.

34. Timeline of Anti-trust case against Microsoft in the US (2) • February 2001, Two days of oral arguments in the U.S. Court of Appeals for the District of Columbia concluded. The judges cast doubt on the decision to break up the company but suggested the core antitrust violation could stand. • November 2002, Microsoft and the U.S. Justice Department announced that they had arrived at a settlement to end the long-running antitrust case. Microsoft would not break up.

36. Why was Microsoft able to avoid breaking up? • The historical trend(a doubt in whether punishing a monopolist would be a good way to solve the monopoly problem) • The overall economic conditions (the favorable verdict on Microsoft in the U.S was passed shortly after 9/11, for fear that a split-up Microsoft would further damage the economy) • The thought of protecting national competence (Microsoft is America) • Political concerns (Microsoft’s strong lobby group) • George Bush Jr., a Republican president, was elected into the White House

37. EU Commission Vs. Microsoft 2001 EU Commission delivered an antitrust ruling against Microsoft in a case that began in 1998 with complaints from Sun. 2004 EU ruled that Microsoft hadabused its market dominance and decided to fine Microsoft 497 million euro. 2005.6 Microsoft promoted its Windows Operating System without media player. 2006.7 EU decided to give Microsoft another fine totaling 280 million euro. 2007.9 An EU court dismissed Microsoft’s appeal against the EU antitrust order.

38. Latest Development • 2/27/2008, European Commission announced an 89.9 billion euro fine on Microsoft for its failure to observe the EU ruling in 2004, making the total fine 1.68 billion euro.