10.01.2011

Finance & Economy

• What is predatory pricing?  Why is it difficult to prove predatory pricing?
• Predatory pricing refers to a situation where a firm charges a price below its cost of production, with the intent of forcing its competition to either immediately exit the market, or to exit the market after facing losses for a while. Once the competition exits the market, the predatory firm raises prices.
• There are three main reasons why it is difficult to prove that a firm is engaged in predatory pricing.
• The first is determining whether a firm is charging prices that are below average variable costs.  A rational firm will not stay in business when the price for its product is below its average variable cost, unless it has some intent other than current loss minimisation.  The Areeda-Turner test is employed by the US courts to determine whether or not there is any predatory intent.  According to this test, a price below the shortrun marginal cost should be unlawful.
• The second is proving intent. Firms can reduce prices because costs have fallen; hence, it is difficult to prove that a firm reduced prices with predatory intent.  
• The third is the rationale for predatory pricing. The rationale is that the predatory firm manages to force competitors out from the market, and after their exits, raises prices above the competitive level.
• Companies will have to report resettlement misses
• Companies will be asked to extend proper rehabilitation and resettlement packages for people displaced by their operations, failing which they will have to report reasons in their annual statements.
• This proposal forms part of the corporate ethics guidelines being prepared by the corporate affairs ministry. Companies will also be asked to maintain ecological diversity in areas where they operate and report project-wise work done in this regard.
• While the new guidelines will be kept voluntary, companies will have to explain reasons for their non-compliance, hence creating an indirect sanction. The government has adopted the strategy of “apply or explain”, which effectively means any non-conformity with the norms will have to be reported with reasons. These details will form part of the business responsibility statement, accompanying the company’s annual report.
• The government has been concerned over the way corporates have been exploiting the riches of the country’s tribal belt, with many key projects hitting the regulatory wall for flouting norms.

International

• On how developed countries got away with more benefits in climate change negotiations
• The geopolitical nature of climate change has focused on institutional arrangements to dilute commitments of developed countries in three different tracks.  They are:
• Negotiations around the Kyoto Protocol saw developed countries shift the focus to flows from stocks of carbon with offsets reducing the costs of measures. Consequently, the total amount of surplus emissions credits, or ‘hot air,’ is large enough to allow these countries to follow a business-as-usual pathway until after 2020, while still complying with the emissions targets announced at Copenhagen.
• The second track has been to keep developing countries engaged in new institutions to support capacity building projects (Global Environment Facility, Green Climate Fund), expert groups (technology transfer, adaptation) and programmes of action (adaptation, forests) whose only tangible result has been to increase awareness and transfer limited funds to the least developed countries. Adoption of new energy or agriculture technology has not been provided the promised incremental costs. At Cancun, too, intellectual property rights were off the table and discussion on the nature and modalities of funding postponed. Finance serves to solve a political problem and not the problem itself.
• The third track has been to end the differentiation between countries in undertaking emissions reductions, and each annual meeting of the Convention post-Kyoto has advanced this agenda to the point where developed countries, in the Cancun agreements, are only required to take the lead before developing countries take on commitments.

Language Lessons

• pyrotechnics: Noun
• (music) brilliance of display (as in the performance of music); The craft of making fireworks
• eg: While the step by step process by which the minister whittled down the Comptroller and Auditor General’s numbers provided the pyrotechnics at his demolition job, the operative part was reiteration of the telecom policy itself...