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Unformatted text preview: G202 (4/27/2009) • Markets for Quality Regulation – Private regulation forms when customers perceive that government quality regulations are insufficient. • Private regulation will be profitable for firms if the market values the additional regulation over the cost of providing it. – Examples of Private Regulation: • Best Western: • Owns no hotels, but allows hotels to use its logo (for a fee) if it meets its own quality standards. • Underwriters Laboratories: • Private firm that establishes standards for electrical equipment and then tests equipment (for a fee) to see if it meets their standards • CARFAX.com: • Provides information about a car’s history (for a fee). – Generally, brand names and franchises provide incentive to ensure product quality (protect reputation). Public Vs. Private Regulation – Public Regulation: • Don’t always consider the costs of regulation • Funded through taxes paid by all individuals • Tend to respond to only media scares – Private Regulation: • Profitability depends on the efficiency of their regulations • People that benefit from regulation pay for it • Based on the need for regulation from within the industry Additional Social Pressures – Socially Minded NGOs will take action whenever they believe public and private regulation are insufficient at ensuring quality. – When reading the Nike Case, pay attention to the notion of public regulation, private regulation, and NGO pressure, as all three are intertwined within the case. • • ...
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- Winter '09