Agency Theory: Principal Agent Model

Competition authorities generally differentiate vertical agreements - agreements between firms operating at different levels of the supply chain - from horizontal agreements - agreements between competitors active on the same relevant market. While vertical agreements can potentially increase consumer welfare by facilitating coordination through the value chain, horizontal agreements are generally a breach to antitrust laws. Yet, an increasing number of arrangements appear as a mix of vertical and horizontal agreements: they involve competitors and at least one participant which operates at a different level of distribution. Those agreements are often labeled “hub-and-spoke” conspiracies.

In this section the author describes the theories that will support the analysis of information. In order to construct a theoretical background for the study the author chose to describe theories regarding the selection of countries. 5.1 Transaction costs theory Transaction cost theory was developed by Coase (1937) and then re-analyzed by Williamson (1979). The theory explains why companies exist and expand their activities to external environments finding out that ‘’A Transaction cost occurs when a good or service is transferred across a technologically separable interface’’.

1. Marketing stimulation which is linked to marketing mix (Price, Place, Product, and Promotion). In previous research, it is confirmed that marketing mix have significant impact to purchasing decision (Andotra & Pooja, 2007). 2. Other stimulation for example, economics, technology, law and political, cultural etc.

The cultural distance will influence MNEs’ behavior in two ways. First, it will increase the degree of diversity and complexity in the exogenous elements. Second, the MNE’s endogenous ability to cope with such complexity and operate effectively in the host markets will decrease (Gomez-Mejia & Palich, 1997; Hennart & Larimo, 1998). According to Barkema and Vermeulen (1998), greater similarities between cultures will help the firms to gain access to new customers at a lower cost and to successfully establish and manage manufacturing operations. Moreover, the firms can also benefit from the competition against groups of local firms of a relatively homogeneous kind when entering foreign markets.

Some research has even did away with loss aversion, either by centering on certain goods (e.g., exchange goods of fixed value show no loss aversion; Van Dijk and Van Knippenberg 1996) or by inducing emotions just before the value elicitation. For

Second, it is argued that cost-benefit analysis contain a unadventurous bias because its Valuation principle, motivation to pay, depends upon ability to pay (i.e. wealth and income), Which is unequally disseminated? Again, the criticism is valid in theory but need not be so in put into practice. Weights may be assign to benefits which accrue to specific groups, if there is a clear and explicit policy good reason for doing so. Also merely display the incidence of (un weighted) costs and benefits will often provide useful indicators of the equity implications, in income distributional terms, of projects and programmes. It is then up to the political Process to trade off evenhandedness and good organization

In addition, previous research has argued that some factors may reinforce or weaken variety seeking behaviors, such as mood (Kahn & Isen, 1993), store atmosphere (Menon & Kahn, 1995), and characteristics of a product category. These studies also state that people seek a greater variety when they are making multiple choices for their future consumption (simultaneous choices for sequential consumption) than when they are making a single choice individually (sequential choices for sequential consumption). More clearly, it is posited that as compared with sequential choices, simultaneous choices tend to yield more variety-seeking behavior. Previous research has explored some factors that may moderate variety-seeking; however, consumers’ goal orientation has not yet received much attention in the studies on variety-seeking.

DRAWBACKS OF INTERNATIONAL TRADING Drawbacks of international trade extent from negative social effects to opposing environmental consequences. Occasionally the well-being of people is overlooked or risked for the sake of return on investment. Other issues related to the exchange of services and goods between countries include a potential unsafe need of foreign countries and local occupation losses. There are social hindrances of international trade. While experience with other cultures can be an advantage, it can also be damaging.

According to Vazquez (2007), it is helpful to understand the source of potential conflict. Below are some common sources of conflict cited by Vasquez:   Conflict type Description Values conflict Involves incompatibility of preferences, principles and practices that people believe in such as religion, ethics or politics. Power conflict Occurs when each party wishes to maintain or maximize the amount of influence that it exerts in the relationship and the social setting such as in a decision making process.

Market failures arise when free markets fail to develop, or when they fail to allocate resources efficiently. There are several different types of market failure. Markets can fail in two basic ways, a complete failure and partial failure. A complete market failure exists when free markets are unable to allocate scarce resources to the satisfaction of a need or want.