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Eugene Fama was an undergraduate student at Tufts University when he first began to develop an interest for economic theory (Tuft’s E.Newz). Mr. Fama worked for a professor who was trying to develop a “buy - sell” formula for the securities market based on price momentum (News-School). The phenomena accompanied with his study, plus the skills that he acquired while evaluating stock market data, drew Mr. Fama to the University of Chicago where he would finally develop what is known today as the “Efficient Market Hypothesis”.

INTRODUCTION

This paper reviews the theoretical and empirical evidence on the “Efficient Markets Hypothesis”. After a discussion of the theory and its relevant forms, empirical work concerned with the adjustment of security prices to the three relevant information subsets is considered. First, weak form tests, in which the information set is just historical prices, are discussed. Then the semi-strong form tests, in which the concern is whether prices efficiently adjust to other information that is obviously publicly available, (e.g., announcements of annual earnings, stock splits, etc) are considered. Finally, strong form tests concerned with whether given investors or groups have monopolistic access to any information relevant for price formation is reviewed.




Next, this review will discuss some particular problems associated with testing the Efficient Market Hypothesis; specifically the setbacks associated with developing a benchmark (or expected return) when applying the CAPM model.

Furthermore, this review will identify some specific anomalies associated with the Efficient Market Hypothesis; illustrate the evidence of abnormal returns, and describe the empirical research performed to identify the causes of occurrence.

Finally, this review will introduce the recent evolution of “Behavioral Finance”, a concept that has been initiated in attempts to enhance the understanding of investors and the Efficient Market Hypothesis.

EFFICIENT MARKET HYPOTHESIS

According to the theory of “Stock Market Efficiency”, an efficient market fully and accurately reflects all of the relavent available information in the price of a security (Fama, 170). The nature of the information does not have to be limited to financial news or research alone; information about political, economic and social events, combined with how investors perceive such information will be reflected in a securities price. Furthermore, the securities market is flooded with thousands of intelligent, well-paid, and well-educated investors seeking under and over-valued securities to buy and sell(Fama, 11). The more participants and the faster the dissemination of information, the more efficient a market should be.

As security prices only respond to information available in the market, and because the information is available to everyone, no one has the ability to “out-profit” another. Security prices are therefore random, and this “random-walk” of price results in the failure of any active investment strategy aimed at beating the market consistently. A planned investment approachs cannot be successful.

ASSUMPTIONS

Perfect Information is one of the pre-conditions in a perfectly efficienty market. The term “Perfect Information” is frequently used in economics to identify the assumption that complete knowledge is available to all securities market participants(Fama, 170). The information is available at no cost, and trading on such information is free. Furthermore, it is the assumption that all market participants agree to the implications of such information and a securities price fully reflects the expected return.

In the “real-world” however, the assumption of Perfect Information is highly unlikely. There are transaction costs associated with acquiring/analyzing market information and secondly, trading securities in the market is often performed for a nominal fee (Varian, 18). Furthermore, even the most sophicsticated security investors do not receive information instantly, nor do they react to it instantly. There is a vast amount of information that travels through the avenues of financial firms daily, and the major decisions are taken by committees or small groups of people to discuss, analyze, and decide as to what to do (Varian, 18). The major financial institutions must analyze the market impact a large scale transaction will have when transferring their funds from one asset to another, all of which takes a considerable amount of time.

A “Random Walk” is a second assumption considered in the Market Efficiency Hypothesis (Fama, 165). The theory claims that a securities price will fluctuate randomly, without any influence by past price movements. Furthermore, the theory assumes that it is impossible to predict with any accuracy which direction the security will move at any given point; neither fundamental analysis nor technical analysis’ maintain any validity.

SUB-CLASSIFICATIONS

A more complex interpretation of the “Efficient Market Hypothesis” identifies three classifications of market efficiency. Each classification is aimed at reflecting the degree to which the theory can be applied to the security markets.

WEAK FORM OF MARKET EFFICIENCY � Suggests that all past prices of a security are reflected in today’s securty prices, therefore, technical analysis cannot be used to provide an investor with an advantage (Fama, 170); examining market trading data such as the history of past prices, trading volume, or short interst, and trend analysis is fruitless (Frankel & Froot, 10).

The use of stastical investigations on time series data is applied to test the weak form of market efficiency. Charting and techincal analysis both apply a series of numerical values such as price and volume to predict future trends, and while widely used by both professional and amateur traders this type of analysis implicitly rejects the efficiency of the market as understood in the efficiency market hypothesis.

With the innovation of computer software new types of technical analysis applications have been developed to allow the users to design their own indicators and to optimise them by testing their profitability (Tung, 1). Analysts or chartists believe that by analyzing the history of a securities price they can develop probabilities and anticipate future events. This type of technical analysis applies statistical data to search for meaningful signals amongst the apparent random fluctuation of stock price movements, and although technical analysis has produced mixed results, it is commonly practiced in the securities market.

Two commonly used types of technical analysis included

BAR CHARTS Bar charts are often used to identify patterns in price, volume, and the current trend of a securities price, and can be customized to illustrate price fluctuations throughout the day, month, or even year. With the use of a Bar Chart, an analyst can attempt to identify any trend in the securities price and therefore forecast its future based on past information illustrated in the graph. The items highlighted in Blue identify the day-to-day price fluctuations, which are currently on a downward trend. The Green and Red lines identify the trading activity or volume, which takes place on a day-to-day basis.

MOVING AVERAGE CHART

The moving average chart identifies the average closing value of the securities price. This information is generated by combining the sum of closing prices and dividing them by the number of days under observation. This type of analysis is often used to identify the direction of a trend and to smooth out price and volume fluctuations. The Red Circle ( Left Side) identifies a drop in the securities price below its 50 day average (Green Line), this trend continues until January, where the second Red Circle (Right Side) identifies an increase in the stocks actual price relatively larger then the 50 day average. This information combined with historical data could identify a trend in the securities price during the month of January, sometimes called the January Effect.

SEMI-STRONG FORM OF MARKET EFFICIENCY � Suggests that all public information is calculated into the securties current price. No form of “fundemental” or “techenical” analysis can be used to provide an investor with an advantage (Fama, 170).

To test the semi-strong form of market efficiency, an analysist researches any types of adjustments to a securities price after unknown news has been released. Any types of “consistent fluctuations” in a securities price after the initial change in price suggest that investors have interpreted the “New Information” inefficiently (Frankel & Froot, 10).

By applying a Fundamental analysis, an investor attempts to value a security by analyzing the companies accounting information. Fundamental Analysis is a method that uses earnings and dividends forecasts, economic analysis, quality of the firm’s management, the firm’s standing within the industry, and the prospects for the industry as a whole. The hope is to attain insight into the future performance of the firm that is not recognized by the rest of the market(Frankel & Froot, 10). Although the results from this type of analysis have varied in the past, investment firms like Meryll Lynch, Smith Barney, and Morgan Stanley Dean Whitter continuously apply fundamental analysis to develop strategic investment portfolios for their clients.

Three types of Fundamental strategies often applied include

Value Strategy The value strategy involves selecting certain securities which appear to be underpriced in relation to their fundamentals. By evaluating a firms Price � Earnings ratio, Price �Book Ratio, Dividend Yield, Price to Sales Ratio, Dividend �Earnings Ratio, and Earnings to Sales Ratio an analyst can determine whether or not a security is undervalued in comparison to its intrinsic value.

Momentum Strategy The momentum strategy involves the selection of certain securities which show a strong appreciation in price, either in absolute or relative terms. By evaluating a firm’s Mean Return, Past and Current Performance, Trend, and Continuous Momentum, an analyst may try to identify any persistence of the forces that drive the particular market as well as the security.

Growth Strategy The growth strategy involves the selection of securities that show a continuous growth in both earnings and sales. By simply evaluating the growth of a firms Earnings Per Share, and Sales in association to the current market condition an analyst can determine whether or not the firm is likely to continue its growth pattern.

STRONG FORM OF MARKET EFFICIENCY �Suggests that all information whether public or private, is accounted for in a securities price. Although private information, also known as “inside information” is held only by the directors, managers, and professional advisors of an organization, a security price is still at its intrinsic value (Fama, 170).

In evaluating the theory of a strong-form of market efficiency, studies on the US stock market have shown that people who do trade on inside information sometimes make enormous profits (Kyle, 185). Furthermore, it was also found that investors who monitor the trading activity of insiders, and thus follow their activity have sometimes enjoyed the same type of profits (Tung, 1).



Exhibit A



Exhibit B



Exhibit A and Exhibit B illustrate the effects of individuals who, by virtue of their possession retain nonpublic information and use it without restraint in security trading. As Exhibit A demonstrates, the magnitude of profits earned by corporate insiders exceeds the profits available once the information is released to the public (Exhibit B), thus rejecting the strong form of market efficiency.

TESTING THE THEORY

Testing the Efficient Market Hypothesis can be classified into three main categories. The first type of test identifies whether abnormal return are independent of newly released information. The second type of test exposes any form of abnormal returns after taking into account the transaction costs and risk associated with the trading of a security. The third type of test determines whether the market price of a security is equal to its intrinsic value.

Testing the Weak Form of Market Efficiency

The statistical analysis of independence between rates of return and past security prices is applied to test the weak form of market efficiency. Throughout history two conventional types of tests have been applied. The first type of test ,Serial Correlation Test, identifies any positive or negative serial correlation between returns over a period of time (Lyon & Tsai, 1). The second type of test ,Run Test, compares the actual values of a securities price to its expected (forecasted) value (Lyon & Tsai, 1). Consistency in serial correlation or accurate forecasting would identify an imperfection in the weak form of market efficiency and thus reject the hypothesis, however the evidence generated from these tests suggests that the weak form of market efficiency is accurate.

Testing the Semi-Strong Form of Market Efficiency

Testing the semi strong form of market efficiency requires the examination of economic, industry, and firm specific information and its affect on a securities price. Specifically, the analysis distinguishes whether or not a securities price fully reflects all publicly available information.

An important breakthrough in testing the Efficiency Market Theory came with the advent of the Event Study method. The first Event Study was applied to stock splits, however similar tests have been structured to evaluate dividend announcements, earnings announcements, large transactions, repurchase tender offers, and other public announcements. Secondly, Time Series Analysis Tests are performed to evaluate the affect of public information on a securities price and to determine whether or not specific information will provide a superior estimate of returns for a short horizon (1-6 months) or a long horizon (1 � 5 years).

The continuous examination of Event Studies and Time Series Analysis had supported the Efficiency Hypothesis (Stanton & Gabriel, 1). However, contradicting evidence (market anomalies) has been discovered leading to mixed results in the Semi-Strong theory.

Testing the Strong-Form of Market Efficiency

Testing the strong form of market efficiency incorporates the investigation of insider trading and its contribution to abnormal returns. The strong form suggests that all information, whether public or private, is accounted for in a securities price, thus investors trading on “non-public” information will not earn abnormal profits.

Numerous tests have been performed to identify insider trading and the release of new information (Allen, 18). As mentioned before, evidence suggests that insiders do earn superior returns on securities when trading on the basis of inside information, thus rejecting the strong form of market efficiency.

PROBLEMS TESTING EFFICIENT MARKET HYPOTHESIS

In an efficient market, no information or analysis can be expected to result in the out-performance of an appropriate benchmark, or “expected return”. Appropriate benchmarks refer to comparable securities of similar characteristics. The difficulty lies with the lack of ability to identify an accurate benchmark to measure actual and expected returns.

CAPM Model

Earlier investigations of the Efficient Market Hypothesis utilize the Capital Asset Pricing Model (CAPM) to generate an “expected return”. The Capital Asset Pricing Model is an economic model for valuing stocks by relating risk and expected return (Reinganum, 181). The assumption is based on the belief that investors demand additional expected return on assets that have a higher measure of risk.

Although the results proved to be accurate there is particular criticism to applying the CAPM model because it too is a hypothesis. Arguments against the use of the CAPM model suggest that the expected returns are unobservable therefore the evidence is inconclusive (Reinganum, 181). Secondly, estimates of the firm specific risk is imprecise, which creates a measurement error problem when applied to calculate an expected return. The two aforementioned arguments represent the Joint Hypothesis Problem, which states that “tests of the Efficient Market Hypothesis are joint tests of market efficiency and the Capital Asset Pricing Model”. Thus if the CAPM model is incorrect so is its evaluation of the Efficient Market.

Data Mining

The rapid evolution of computer technology has provided investors with the capabilities to access and analyze vast amounts of financial data (Investor Home, 00). But the financial data provided to the market is not standardized, therefore there are numerous approaches to both producing and evaluating this information. The difficulty with data mining is the quality of sources of the data. The recording of revenues, net income, shares outstanding, earnings per share, cash flows, total returns, and many other important equity variables are highly source dependent (Loughran, 1). All multifactor equity models work on the assumption that the data upon which the model was constructed is comparable to other inputs, but due to the multiple accounting practices this may not be so. Therefore, the return predictions generated from a data mine source may be inaccurate and thus unobservable.

Assessment of Risk

An accurate assessment of risk needs to be established to properly identify the expected returns of a security’s value. An estimation of risk refers to identifying the investor’s uncertainty about the parameters of the return on a security; these parameters can differ significantly from the properties perceived by rational investors (Reinganum, 181). Therefore, actual returns can deviate from the expected. Thus producing a perception of excess returns when in reality the returns are normal.

Changes in Risk-Free Rates

Continuously changing risk-free rates are another problem in evaluating the Efficient Market Hypothesis. Fluctuations occur daily and therefore if the risk-free rate is an important factor in identifying the “expected return”, a continuous change in risk-free rates could produce an inaccurate estimation of the “expected return” (Reinganum, 181).

ANOMALIES

Despite the strong evidence that the securities market is highly efficient, numerous studies have been conducted to identify long-term historical anomalies that appear to contradict the Efficient Market Hypothesis. An anomaly is an “exception to the rule, or a deviation from what is expected”, therefore an exception to the Efficient Market Hypothesis (Jenson, 178). Furthermore, although the abnormal returns earned by anomalies associated with the securities market are not constant, they are all associated with above-average returns over a long period of time.

The anomalies listed below have all become well documented during the last few years and sometimes indicate inefficient market efficiency, thus offering potentially profitable opportunities to investors.

January Effect The January Effect refers to a phenomenon in which securities (usually small-cap), recognize higher rates of return in the month of January. Since 16, research has shown that very small securities are the prime beneficiaries, having on average recorded excess returns of approximately 10%. Midsize securities have recorded average excess returns of %, and approximately 1% for larger securities (Stanton & Gabriel, 1).

One theory suggests that the January effect is attributed to small-firms rebounding from a year-end tax sale by investors (Stanton & Gabriel, 1). The assumption is that relatively low year-end securities are usually sold for investors to realize a tax-loss. Once the tax calendar has ended the investors then reinvest their money in the market, thus causing the security prices to increase. A second theory suggests that individuals are simply compensated for the extra risk associated to investing in the small firms (Investopedia.com, 00).

Small Firm Effect First introduced by Rolf W. Banz in 181, the “Small Firm Effect” asserts that small capitalization (small-cap) securities appear to provide greater than average returns without a corresponding increase in risk (Market Volume Analysis, 00). Research indicated that risk-adjusted returns for smaller firms exceed the returns of larger firms by approximately 1% per year on average from 16 to 180 (Statman, 180). The highest returns were recognized in times of strong economic growth and during strong recovery following a recession. On the other hand, when economic times were poor, smaller firms generally under-performed their larger counterparts (Statman, 180).

Although there is no simple explanation for the Small Firm Effect, researchers suggest it could be caused by one or all of the following (1) Information uncertainty � which asserts that researchers are less likely to thoroughly investigate small-cap securities and the lack of information amounts to relatively higher risk, thus providing a potential opportunity to exploit market miss pricing (Sloan, 16). () Higher Transaction Costs and Illiquidity � which asserts that small-cap securities can be more expensive to trade or subject to wider bid-ask spreads due to the lack of liquidity, thus excess returns are possibly due to the compensation required by investors (Brau & Heaton, 00).

Market Over/Under Reaction Research indicates that security prices overreact to “firm specific” information, and under-react to “common factor” market information (Abar & Banell, 1). This over/under reaction is subsequently followed by a reversal in the securities price; the more extreme the initial price movement, the more extreme the following adjustment.

Earlier studies suggest that security investors are overly optimistic or pessimistic about the effects of new information and therefore overestimate the correlation on returns (DeBont & Thaler, 185). However, a recent study has suggested that when these returns are adjusted for differences in characteristics between winner and loser stocks, such as size, book to market, and trading volume there is no irregularity (Ball & Shanken, 15).

Post Earnings Announcement Drift Security price changes tend to persist after initial earnings announcements. Securities with positive announcements tend to drift upward, and those with negative surprises tend to drift downward (Bamber, 17).

The theory suggests that individual investors who are less sophisticated than institutional investors cause Post Earning Drift, and that the trading by individual investors causes market inefficiency. Investors naively assume earnings follow a seasonal random walk and fail to understand the implications of current earnings for future earnings (Bernard & Thomas, 18). On the other-hand, a second theory suggests that investors are not less sophisticated, but they underestimate the degree of correlation of current earnings for future earnings (Ball & Bartov, 16).

Behavioral Finance

The Efficient Market Hypothesis is based on the belief that investors act rationally and consider all available information in the decision making process. However modern research has exposed a considerable amount of evidence identifying repeated patterns of irrationality, inconsistency, and incompetence in the ways investors make decisions when faced with uncertainty. Such evidence is often referred to as market anomalies.

Since the 180’s there has been a movement to incorporate behavioral science into finance. Behavioral finance is the study of how investors interpret and act on information to make informed investment decisions (Shleifer, 1). By including behavioral science into the study of finance, researchers are able to improve the research on the Efficient Market Hypothesis by incorporating psychology-based theories to explain market anomalies (Varian, 18).

The recent evolution of Behavioral finance stems from attempts by researchers to better understand and explain how emotions and cognitive errors influence investors in the decision making process. Researchers believe that the study of psychology and other social sciences can identify current unexplained influences that cause security market anomalies.

The Efficiency Market Hypothesis assumes that investors act rationally and unbiased to available information. Behavioral research, however, has suggested that investors are commonly biased in several regards. For example, investors tend to be overconfident in their predictions in the future of the securities market. Between 17 and 10, security analysts have been substantially inaccurate in the forecasts (errors between 5% and 65%) of actual returns (Barber & Odean, 001).

Secondly, “Frame Dependence” asserts that investor decisions are often affected by a reference point of the given security (Olsen, 00). That is, at which point the investor identifies and evaluates the security. By just focusing on the recent performance of a security, investors often observe order where in reality it does not exist. Thus interpreting an accidental success to be the result of skill.

Furthermore, the study of behavioral finance illustrates the belief that investors often trade on information they believe is superior and relevant when in fact the information is already reflected in the securities price (Thaler & Berartzi, 001). This results in high trading volumes in the financial markets, a phenomenon that has often puzzled many researchers.

Although the security markets are not entirely efficient, the increasing popularity of behavioral finance has produced numerous explanations for the occurrence of market anomalies. The wide range of information has demonstrated the growing success of behavioral approaches to understanding the confusion of financial markets, and as research continues it is expected that further explanations will be exposed.

CONCLUSIONS

The introduction of the Efficient Market Hypothesis has certainly become a milestone for the financial research. The hypothesis has provided a powerful framework to analyze and understand security prices. Research has indicated that both the Weak and Semi-Strong Forms of Market Efficient are accurate, but conflicting evidence has suggested that the Strong Form of Market efficiency does not exist.

On another note, despite the strong evidence supporting the Efficient Market Hypothesis, some anomalies do exist. This has lead researchers into two different directions. Some researchers suggest that there could be considerable setbacks associated with the development of benchmarks (or expected returns), and others attempt to develop a better understanding of investors and the security markets by applying Behavioral Science.

Nonetheless, the introduction of the Efficient Market Hypothesis has become a world-renowned philosophy that has shaped the way many investors and researchers view the markets today. And with the introduction of Behavioral Science, researchers can expect to grasp a better understanding of investors, the security markets, and the influences affecting them.

References

Abarbanell, J. 1 � “Test of analysts’ overreaction / under-reaction to earnings as an explanation for stock price behavior”, Journal of Finance, Vol. 47

Ball,R. & Shanken, J. 15 - “Problems in Measuring Portfolio Performance”, Journal of Financial Economics Vol. 7

Ball, R. and Bartov, E. 16 � “How Naïve is the Stock Market’s Use of Earnings Information”, Journal of Accounting and Economics, Vol. 1

Barber, B. and Odean, T. 001 � “Boys will be boys Gender, overconfidence, and common stock investment”, Journal Of Economics, Vol. 116

Benartzi, S. and Thaler, R. 001 � “Naïve diversification strategies in defined contribution savings plans”, American Economic Review, Vol. 1

Bernard, V. and Thomas, J. 18 � “Post-Earnings Drift Delayed Price Response or Risk Premium?”, Journal Of Accounting Research, Vol. 7

Brav, A. and Heaton, J. 00 � “Competing theories of financial anomalies”, Review of Financial Studies, Vol. 15

DeBondt, W. and Thaler, R. 185 � “Does the Stock Market Overreact?”, Journal of Finance, Vol. 40

Fama, E. 170 � “Efficient Capital Markets A Review of Theory and Empirical Work”, Journal of Finance, Vol. 5

Fama, E. 11 � “Efficient Capital Markets II”, Journal of Finance, Vol. 46

Fama, E. 15 � “Random Walks in Stock Prices”, Financial Analysts Journal, (Reprint) January/October

Frankel, J. and Froot, K. 10 � “Chartists, Fundamentalists, and Trading in the Foreign Exchange Market”, American Review, Vol. 80

Investor Home 00 � “The Efficient Market Hypothesis and The Random Walk Theory”

Investor Home 00 � “Data Mining”

Jensen, M. 178 � “Some Anomalous Evidence Regarding Market Efficiency”, Journal of Financial Economics, Vol. 6

Kyle, A. 185 � “Continuous Auctions and Insider Trading”, Econometrica, Vol. 5

Loughran, T. 1 - “Uniformly Least Powerful Tests of Market Efficiency”, Journal Of Financial Economics, Vol. 5

Lyon, J. and Tsai, B. 1 � “Improved Methods For Tests of Long-run Abnormal Stock Returns”, Journal Of Finance, Vol. 54

Morris, S. 18 � “Testing Market Efficiency”, Financial Institutions Center (Finance Applications of Game Theory), Vol. B

Olsen, R. 00 � “Professional Investors As Naturalistic Decisions Makers Evidence And Market Implications”, Journal of Behavioral Finance, Vol.

Reinganum, M. 181 � “Misspecification of Capital Asset Pricing Empirical Anomalies Based On Earnings Yields and Market Values”, Journal of Financial Economics, Vol.

Shleifer, A. 1 � “Inefficient Markets An Introduction to Behavioral Finance”, Oxford University Press, Vol. 17

Sloan, R. 16 � “Do Stock Prices Fully Reflect Information In Accruals and Cash Flows about Future Earnings?”, The Accounting Review, Vol. 71

Stanton, T. and Gabriel, P. 1 � “Testing Market Efficiency With Information on Individual Investor Performance”, International Review of Economics and Finance, Vol.

Stattman, D. 180 � “Book Value and Stock Returns”, The Chicago MBA, Vol. 4

Stattman, M. 1 � “Behavioral Finance Past Battles and Future Engagements”, Financial Analysts Journal, Vol. 55

Tuft’s E-New’z 00 “Tufts President Lawrence S. Baco Awarded Eugene Fama an Honorary Degree”, May 0

Tung, A. 1 � “The Use of Information System Technology to Develop Tests on Insider Trading and Asymmetric Information”, Journal Of Management Science, Vol. 45

Varian, H. 18 � “Differences of Opinion in Financial Markets”, Financial Risk, Theory, Evidence and Implications, Kluwer Academic Publications, 18



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Human beings generally tend to act according to sensible decisions they make in advance. But when we permit ourselves to be driven by an impulse, we act contrary to what had already been planned. Consequently, we are filled with overwhelming emotions and our state of mind is noticeably affected. This seems to be the case of the main character in “A Pair of Silk Stockings”. In the story, Mrs. Sommers underwent a profound transformation in her state of mind the afternoon she went shopping.

At the beginning of her shopping bout, Mrs. Sommers was very worried and tired. She was so concerned about her children’s needs that she was eager to spend the fifteen dollars she had found on them. As she wanted to provide them with “fresh and dainty” attire, she had to be very careful about how she intended to spend her money. Since she did not want to act hastily, she was very anxious. So she drew a up a wise investment plan for a “proper and judicious use of the money”. She thought that the most sensible way to make it more profitable was by going to bargain counters. Besides, Mrs. Sommers became rather weary. She was always so busy doing the household chores and taking care of the children that she had little time to rest. The day she went shopping, she was so excited that she had even forgotten to have lunch. When she arrived at the store, she felt so weak and fatigued that she had to rest before a counter in order to gather strength to start searching for bargains.

All of a sudden, when she came across a pair of silk stockings, she became so excited that she abandoned herself to her sudden impulses. After her first purchase, she felt so invigorated that she began to spend the money on herself, something she had not done in a long time. Besides, she bought a pair of boots that made her feel both self-assured and satisfied. She also bought a pair of gloves and two high-priced magazines. At that point, she did not care about how much she spent as long as she got what she desired. It seemed that the more she bought, the more excitement she felt. After that, she treated herself to a delicious meal at an expensive restaurant and to a play at the theatre. Besides, she was quite proud of her appearance and the effect it had on the people surrounding her. At least for a while, she felt she belonged to the well-dressed crowd and she gained a sense of self-assurance, because her presence at the restaurant as well as at the theatre “created no surprise”.




Unfortunately, when the play was over, she realized she had to face her old stark reality again. She felt unbearably sad because her dream came to and end. When she went to the bus stop to take the cable car to go back home, she yearned not to reach her destination. She wished to remain in that dreamy state that allowed her to forget, at least for an afternoon, her life full of responsibilities and restrictions. For this reason, she greatly desired the cable car to “go on and on with her forever”.

All in all, Mrs. Sommers was driven by and impulse which brought about an unexpected change in her state of mind the afternoon she went shopping. It is not unusual to find somebody who fails to control their emotions. As we are human beings with irresistible impulses, what we should do is to permit ourselves to fulfill our desires, at least every once in a while.



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Clytaemnestra-The Hatred and Revenge

In Agamemnon, Clytaemnestra’s reaction to events that occurred, led her control her own destiny. She was consumed with hatred. The fact that she knew what she was doing makes her an aggressive figure in this book. To accept Clytaemnestra as an aggressive figure, it is necessary to look at certain events before and after drama, Agamemnon. Agamemnon was doomed before he was born. His ancestors had offended the gods and therefore were cursed. This curse included those of the family who were not yet born.

When the Trojan War began Agamemnon was called to help rescue his brother’s wife Helen. However, in order to resume this duty, he had to sacrifice his and Clytaemnestra’s daughter, Iphigeneia. This act caused Clytaemenestra to have a great deal of hatred for Agamemnon and built a desire for revenge.

Agamemnon was gone for ten years fighting the Trojan War. During that time, Clytaemnestra grew hard and began to think like a man. Even the Leader of the Chorus said some remarks of hers “spoken like a man,”(67). The statement was an insult to her because no woman wanted to be thought of thinking or acting like a man. She decided how to get even with Agamemnon.




When the war ended Agamemnon was to return, and Clytaemnestra was ready. She gave hints of bad times to come for their king. She told the Leader that she was in love with a new man and “that is boast, teeming with the truth”(64). When Agamemnon did return, he bragged to Clytaemnestra about his conquests and ordered her to take care of Cassandra, whom he brought back with him from war. Clytaemnestra was nice to Agamemnon to lure him into thinking that he was still the master and that all was well.

Clytaemnestra stabbed and killed Agamemnon. She told the Chorus that she was proud and that she “brooded on the trial-year after year”(660). She further told them that Agamemnon “Brutalized her”(66) and deserved to die. These statements further proved that an obsession for hatred and revenge controlled Clytaemnestra.

This is my paper of the hatred and revenge of Clytaemnestra. These are circumstances that could happen in our society today. I hope I have showed you my interest in this subject.





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Nationality Swiss

Population 7.11 million (18)

Annual Growth Rate 0.%




Infant Mortality Rate 5/1,000.

Life -

Expectancy Men 74 years of age

Women 81 years of age



Religions Roman Catholic 46%, Protestant 40%, others 5%, No religion %

Languages German 64%, French 1%, Italian 8%,

Romansch 1%, Other 8%

Education Attendance 100%

Literacy 100%

Workforce .8 million. Agriculture 4%. Industry %

Services & Government 67%

Media SRG SSR id�e suisse (the Swiss Broadcasting Corporation)

The largest provider of electronic media in Switzerland. Its services encompass seven TV channels and 18 radio stations, complemented by websites and teletext.

Communications Telephones - main lines in use 4.8 million (18)

Telephones - mobile cellular 810,170 (1)

Telephone system excellent domestic and international services

Domestic extensive cable and microwave radio relay networks

International satellite earth stations - Intelsat (Atlantic Ocean and Indian Ocean)

Radio broadcast stations AM 4, FM 11 (plus many low power stations), short-wave (18)

Radios 7.1 million (17)

Television broadcast stations 108 (17)

Televisions .1 million (17)

Internet Service Providers (ISP’s) 115 (Switzerland and Liechtenstein) (1)

.0 Stability of the Swiss Political System



.1 Structure of the Swiss Legal/Regulatory System

. Reliability of Switzerland as a Trading Partner

. Constitutional Guarantees

.4 Protection of Property Rights





.0 Stability of the Swiss Political System

Although, Switzerland has a diverse society, it has a remarkable political stability, which is the result of its policy of strict neutrality. Since, Switzerland is maintaining its neutrality, the country has become a refuge for capital all over the world. Both political and neutrality play a major role in Switzerland to create economic neutrality. It has the highest per capita income of any industrial nation and the Swiss Government also allows other peoples efforts to be rewarded.

Switzerland is a democratic country, which plays an important role supporting the increasing amounts of democratic institutions and values internationally, with also contributions to humanitarian relief and economic development assistance. These policies are taken into account by the United States who have been willing to co-operate with Switzerland’s neutrality.

Switzerland maintains diplomatic relations with almost all countries and throughout the many years, it has serves as a neutral diplomatic intermediary. Switzerland has no major disputes in its bilateral relations with other countries.

The Federal Government and Cantons share political power. Similar to the United States, power that is not appointed to the Federal Government, resides with the cantons that have endured a positive amount of independence within the Federal sector over many years. The third level of Swiss Government is the commune, who decide issues of local importance i.e. construction of roads, bridges.





.1 Structure of the Swiss Legal/Regulatory System

There are two regulatory bodies, which are active in Switzerland

• ComCom (Communication Commission) � This is an extra parliamentary commission whom is designated responsibility of telecommunication licences.

• OFCOM (Office of Communication) � This is the main regulatory body in telecommunications and ICT.

Switzerland’s regulatory and legislative system consists of Swiss Penal Law, The Swiss National Law, The Law on Data Privacy, The telecommunication Law, The Federal Law on Electronic Signature, The Federal Law on E-Commerce and The Ordinance on I.T and Telecommunication Federal Administration Law.





. Reliability of Switzerland as a Trading Partner

Switzerland is the richest country in Europe and is situated in the middle of the world’s largest trading zones. It is also known for being the third largest financial centres in the world. Swiss companies are dependent on their exports but, because they are declining stronger ties with the rest of Europe, it will be harder for them to export products across their borders.

The EU is Switzerland’s largest trading partner with economic and trade barriers at a minimal proportion between them. Switzerland is a small country and it depends on importing raw materials to support its industries. They have to manufacture high quality products with also a combination of superior services.

Switzerland became the leader in development of high tech precision instruments, chemicals, metal, machinery and watch making, closely followed by pharmaceuticals, which are Switzerland’s leading exports.

Switzerland’s trade centres are mostly situated around Europe, which has 60% trade with European countries. 15% of its exports go to undeveloped countries.





. Constitutional Guarantees

Constitutional theory expresses that individuals and states are more likely to agree on equal freedoms and on general constitutional principles if they have to choose long term basic rules from behind a `veil of uncertainty (J. Buchanan). This is what makes it difficult for each country that trades together, to identify the future impact and results of the rules. It makes them consider the long term effects of equity and fairness.

Freedom of Trade and Industry in Switzerland

(1) Freedom of trade and industry is guaranteed throughout the territory of the Confederation, subject to such limitations as are contained in the Federal Constitution and the legislation enacted under its authority. (http//www.legalserviceindia.com/constitution/const_swiz.htm)

() Cantonal regulations concerning the exercise of trade and industry and the taxes on such activities remain unaffected. However, such regulations shall not depart from the principle of freedom of trade and industry except where the Federal Constitution provides otherwise. Cantonal monopolies are likewise excepted. (http//www.legalserviceindia.com/constitution/const_swiz.htm)







.4 Protection of Property Rights

Switzerland has one of the best regimes in the world for the protection of intellectual property. Inclusive is that protection is afforded substantially on equal terms to foreign and domestic rights holders. Switzerland is one of the members of the major international intellectual properly rights convention. She is also an active strong supporter of IPR text on the GATT Uruguay round negotiations.

Switzerland is a member of the European Patent Convention as well as the Patent Co-operation Treaty. In 1, a new copyright law recognises computer software as literary work, which enables monetary rewards for private copying of audio and videos.

If filed in Switzerland, a patent application must be made in one of the countrys three official languages (German, French, and Italian). The application must include detailed specifications and sometimes technical drawings are needed. The patent lasts for 0 years. Renewal fees are payable annually with an increasing of fees. However, patents can not be renewed after the 0 years. There is only an exception to renew the patent for products such as pharmaceuticals, which require an extensive testing period prior to marketing.

The Swiss Patent Law (154) states that the following items cannot be covered by patent protection Surgical, Therapy and Diagnostic Processes for application on humans and animals; inventions liable to disturb law and order.

Patents are not granted for species of plants and animals and biological processes for their breeding. In many other areas, the law in which the patent covers is identical to that in the United States. If an American firm has concerns about possible patent infringement in Switzerland, access to the courts is always available.



.0 Economic Structure and Activities

.1 Labour Market

. Economic Indicators

. Freedom to Establish Partnerships, Licensing Agreements

.4 Exchange Rates





.0 Economic Structure and Activities

The Swiss economy is one of the most advanced and prosperous. The Swiss economy has just about survived the recession, which had occurred in 11. The Swiss market was affected by a slight collapse in the real estate market, which was a damaging factor. The Swiss franc had also been affected and became weak which led forecasters to project satisfactory growth economically to about % for Switzerland in 18.

Swiss companies have a major position to play in world export markets. They specialise in high value-added products such as pharmaceuticals, chemicals, watches, speciality machinery, and gourmet foods such as chocolates and cheeses. Swiss banks and insurance companies are also the main players on the world scene.

Switzerlands largest trading partner is the EU and their economic trade barriers between them are at a minimum. However, the Swiss Governments long-term intention is to join the EU, and the government was rejected in a referendum on the subject of membership in the European Economic Area in late 1.

The debate over EU membership is still existent till this day and those who opposed opinions, stated that the country has not suffered economically by not being a member. This was clearly obvious as the Swiss economy, remains the envy of much of the world. Switzerland has attempted to disperse of any possible adverse effects of non-membership by conforming many of its regulations, standards, and practices to EU directives and norms.

Recent Activities of Switzerland

• CIS-7 Conference in Lucerne - A conference on the seven poorest countries of the Commonwealth of Independent States (CIS-7) ended in Lucerne, Switzerland on January , 00 with a call to donors to find ways to increase financial assistance on grant terms to the countries of the CIS-7 (Armenia, Azerbaijan, Georgia, Kyrgyz Republic, Moldova, Tajikistan, and Uzbekistan).

• The CIS-7 Initiative was launched a year ago to address concerns about the severe economic difficulties, increases in poverty, and rapid build-up of debt in many of the CIS-7 countries since independence in the early 10s.

• The conference, which brought together government and civil society representatives from the CIS-7 as well as the international donor community, broadened and deepened the debate to include a range of economic, institutional and social issues that must be tackled if the seven countries are to achieve the targets of the Millennium Development Goals.

• The Initiatives co-sponsoring agencies will now work with CIS-7 governments, donors and civil society to elaborate follow-up actions on finance and debt relief, ownership and governance, capacity building, and regional integration. [Source ECA News February 00]

• The Third Annual Conference of the Parliamentary Network on the World Bank - Was hosted by the Swiss government in Bern, May -11, 00. The conference was sponsored by SECO (Swiss State Secretariat for Economic Affairs) and held in the Swiss Parliament. More than 100 parliamentarians from over 40 countries participated. (http//wbln0018.worldbank.org/eurvp/web.nsf/Pages/Switzerland-Activities)

• World Bank President, James Wolfensohn visited Switzerland, May -10, 00 - He participated in the Third Annual Conference of the Parliamentary Network on the World Bank, and met with representatives from the Federal Department of Economic Affairs, Federal Department of Foreign Affairs, and the Swiss Agency for Development and Co-operation. He also had a question and answer session with Swiss NGOs (Swiss Coalition of Development Organisations, Bread for All, Helvetas, Swissaid and Berne Declaration) and met with Swiss business leaders. (http//wbln0018.worldbank.org/eurvp/web.nsf/Pages/Switzerland-Activities)

• September -6, 001, Vice President for Europe Jean-François Rischard attended the Sustainability Congress in Bern and met with members of the Swiss Parliament. (http//wbln0018.worldbank.org/eurvp/web.nsf/Pages/Switzerland-Activities)

• June 8, 001, Vice President for Europe Jean-François Rischard gave a keynote speech in the plenary session of the Annual Crans Montana Forum, which took place in Crans Montana, Switzerland. Founded in 18, the Forum meets annually to provide a venue for public and private sector representatives to discuss ways for improving international co-operation and easing the globalisation process in a humanistic way. More than 1,00 participants from 10 countries and organisations attended. (http//wbln0018.worldbank.org/eurvp/web.nsf/Pages/Switzerland-Activities)





.1 Labour Market

The labour market is characterised by upward struggles and the change from an industrial to a service society is having a concise and efficient flow.

The international standards, which Switzerland has, allow a very low unemployment rate, which reflects the above-average flexibility of the Swiss labour market.

It also displays that the Swiss own a tight labour market. The demographic ageing of the population, slower population growth and the trend towards early retirement are adding more pressure on the labour market..

In June 00, Canadas Fraser Institute published its sixth annual report on Economic Freedom of the World. It showed that Switzerland had gained high marks for its liberal economy, in comparison to the growth report issued by the State Secretariat for Economic Affairs (seco).









. Economic Indicators

Switzerland has one of the most liberal and competitive economies in the world. In the financial services and direct investment departments, Switzerland can match some of the European and global leaders.

Competitiveness, expenditure on research and development, Internet users, are all included in the economic indicators, in which Switzerland occupies a leading position. In cross-border direct investment, the Swiss economy is among the top and is one of the countries which have the highest export rate as a percentage of gross domestic products.

Switzerlands highly developed economy is largely due to its strong alliance’s with the economies of other countries. The technologically advanced industrial sector is characterised by highly specialised, internationally experienced, and flexible small and medium-sized companies. Buying power is very stable which is achieved through traditionally low inflation within the country.

The economic environmental indicators prove that organic farming has a better performance within the market compared with conventional farming which leads to the organic farming system to be more positive to the environment and the country itself.



External Transactions of Commercial Goods and Services

Exports as % of GDP Imports as % of GDP Balance of Trade as % of GDP

15 17 15 17 15 17

Austria 8 4 44 -4 -

Belgium 7 7 68 76 6 5

Denmark 5 41 0 4 4 5

Finland 8 8 0 7 8

France 4 7 1 4 1

Germany 4 8 7

Greece 17 18 7 5 -15 -1

Ireland 75 7 60 7 17 n/a

Italy 8 7 5

Luxembourg 56 81 -10 0

Netherlands 5 68 47 6 5 5

Portugal 0 41 8 -11 -10

Spain 4 8 8 -4 -4

Sweden 41 44 5 8 7 8

UK 8 - -

Norway n/a 8 n/a n/a

Switzerland 40 1 0

Canada 8

USA 11 1 -

Japan 1 11

Albania n/a n/a -6 -10

Bulgaria - 4

Croatia -15 -6

Czech Republic 5 61 -7 -8

Estonia n/a n/a -0 -

Hungary 40 44 -6 -5

Latvia n/a n/a -1 -1

Lithuania -16 -1

Macedonia -1 -18

Poland 6 0 -5 -1

Romania n/a n/a -7 -8

Russia 18 14 6

Slovakia n/a n/a -1 -8

Slovenia -6 -6

Fig .0 External Transactions of Commercial Goods and Services GDP Rates.











Fig . Swiss Franc Past Present and Future





Fig . Bar chart displaying information of organic farming and free range farming.

4.0 Consumer Behaviour

The service industry employs two-thirds of Switzerland’s workforce. The organic food service is the country’s most important economic sector. This Industry is increasingly attracting more of the spotlight of ecological interest than the tertiary sector. Large retailers such as Coop Switzerland and Migros have made dramatic improvements by encouraging environmentally friendly consumer behaviour.



4.1 Size of Markets

The growth of organic farming varies greatly from the mountain regions (ten to thirty per cent of the agricultural area) to the plains (approximately five per cent). All organic farmers belong to the umbrella organisation Bio Suisse (association of Swiss organic farming movements).

Year

organic farms % of all farms total organic land % of agricultural land

180 175

181 06

18 16

18 5

184 86

185 0,0

186 68

187 44

188 485

18 67

10 80 0,87 10.000 0,4

11 40 1.00

1 1.160 17.00

1 1.405 1,0 0.800 1,4

14 1.66 6.100

15 .10 ,80 4.00 ,0

16 .786 4,76 5.400 5,4

17 4.78 5,50 71.70 6,67

18 4.71 6,17 77.84 7,

1 5.07 6,8 8.54 7,7

000 7,50 1.01 8,50

001 5.85 8,50 5.000 8,0

Fig .4 Table displaying information for the growth of total organic markets produced each year

Up to 10, the rate of conversions to organic farming had remained constant for forty years, with annual growth rates of less than ten per cent. During the boom years between 10 and 1, the number of organic farms increased from 800 to 5,000 (table ).

Three factors have influenced this growth

• The consumers’ concern about healthy food

• The agri�environmental policy of the state, which supports organic farms with annual subsidies, and the appearance of organic foods in the two dominant supermarket chains, Coop and Migros.

Branch

Total Production Organic Production

(absolute / relative)

Milk ,867,000 tons 10,500 tons (.7%)

Beef 110,00 tons ,811 tons (.5%)

Pork 1,800 tons ,4 tons (1.1%)

Poultry 40,84 tons 1 tons (1%)

Eggs 61,400,000 eggs 5,000,000 eggs (5.1%)

Wheat 584,400 tons 6,11 tons (1.1%)

Potatoes 687,000 tons 11,564 tons (1.7%)

Vegetables 85,000 (8,475 ha) 800 ha (.4%)

Apples 14,81 tons ,700 tons (1.%)

Wine 1,045,000 hl

(14,1 ha) 178 ha (1.%)

Fig..5 Share of Organic Products in the Different Branches of Production

(Source FiBL, Based on the latest figures from 17, 18 or 1)



4. Access To Media

Television

Switzerland has at least six terrestrial TV stations available everywhere offering an undemanding diet of chat shows, game shows, made-for-TV movies and lots of local news and local interest programming.

Radio

Switzerland has more than forty local radio stations catering to various communities around the country. Swiss Radio International broadcasts news and analysis in English on short wave at 6.165MHz at breakfast time and the evening and at .55MHz at lunchtime, and is also on cable.

The Press

Switzerland has more than 00 newspapers nation-wide. It also has parochial local newssheets, reporting Cantonal and municipal affairs in some detail.

CableCom CableCom are a leading telephone information Service Provider and an inbound telemarketing consultant specialising in large volume call handling applications for both the United Kingdom and World-wide.

Fox Switzerland Fox Switzerland, 0th Century Fox Film Corp..

Micom Mediaagentur Micom Mediaagentur - Mediaagentur fuer innovative kommunikation

Swiss Broadcasting Corporation Swiss Broadcasting Corporation, TV & radio

Swiss Business News A comprehensive guide to the Business News of Switzerland

Swiss Info Swiss Info provide news from Switzerland and around the world

Swisscom Swiss telecom, yellow pages, web services & much more



4. Transportation and Communication

• Direct motorway access to Geneva International Airport (50 min).

• Close proximity to France, Italy and Germany.

• State-of-the-art wireline and cellular telecom links with worldwide coverage.

• Sophisticated technologies for transmission via fibre optics, satellite, microwave, etc.

4.4 Distribution

The market for organic food is growing by twenty per cent per year. It reached 580 million Swiss francs (60 million Euro) in 1, which represented almost two per cent of the total food market. (Dr. Urs Niggli, Research Institute of Organic Agriculture, 001)

The retailer Coop, with a market share of thirty-two per cent of the Swiss food market, is already making four per cent of its food turnover with organic products. The retailer Migros, with a market share of thirty-six per cent, is making 1.8 per cent of its food turnover in organic foods.

The distribution efforts of the two dominant supermarket chains Coop and Migros, Swiss consumers are comprehensively supplied with organic food and the assortment is almost complete.



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Approaching the front door you I saw that the roof was splintered and patterned with harsh frost and as it creaked wide the only thing that I could hear was the gentle hum of the old TV. There was nobody in the living room, nobody anywhere. I felt alone. Everything surrounding me lay untouched just like the last time I saw it. As I walked around I noticed the kitchen was bigger than it used to be or at least seemed to be, actually the whole house seemed bigger than before.

I looked through the passage way to see the cellar door. It was white now covered in dashes of black, and brown wooden marks. I thought it with one touch would fall to pieces. It didn’t seem to have an effect on me this time � although it looked much scarier I wasn’t scared. I opened the door and switched on the light. This was the first time I had seen down here. I was always afraid to walk these steps when I was younger, afraid of some monster which I knew wasn’t there. The room was just an empty space, a few cardboard boxes here and there but everything had been moved. I walked back by the stairs into the living room and turned off the TV and decided to go upstairs. On the way I went into my grandmother’s room. It was quite spacious with the bed centered in the middle and the dressing table in the far corner.

The long passageway ahead of me was narrow and at the top to the left was my room. It was small, and I had shared it with my brother. The light switch didn’t work but the bed was there, nothing else. Not that the house was an empty shack filled with dust and rats, it was still clean and people were still living here, well at least for a week or so. My uncle’s room had been repainted, and the picture of my grandfather remained above the bed. I walked back down the passageway and along another. The bathroom had also been redone up. Everything was new in here, it felt weird. The rest of the house seemed ancient compared to here, it was like a completely different house. At the very end of the corridor was my parent’s room. It was bigger than all of the other rooms and looking out the window you could see a view of the park. Although quite enormous the house was really nothing special and as I went back downstairs I noticed that the banister was polished to perfection as it always was. I sat down on the ugly grey couch, bored. I heard a car pull up outside, the keys rattling their way into the hole and then, the door opened.






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Soft Drinks� Case Analysis

In the years between 175 and 1, the Coca Cola Company posted an average return

on equity of 0.5%. Similarly, PepsiCo Inc. recorded an average return on equity of

1.%. Although these figures likely include the return form non-soft drink operations




(it’s difficult to tell from the available information in the Yoffee and Foley case), it is

clear that the soft drink industry is extremely profitable�profitable, that is, for

concentrate producers such as Coke and Pepsi.

For other members of the soft drink supply chain, the soft drink industry is not nearly as

attractive. Pretax profit for a typical bottler, by way of example, is less than one-third of

that of a standard concentrate producer. This discrepancy between the profitability of

concentrate producers and that of bottling companies results from the competitive

structure of the two separate industries.

Concentrate Providers A Structural Analysis

Using a basic structural analysis of the market for soft-drink concentrate, it is easy to see

why the industry is so profitable. First, there are few direct competitors within this

market Coke and Pepsi make up 7% of the entire market, with only a handful of

additional providers making up the remaining 8%. Furthermore, competition among

these companies is limited by strong brand recognition, especially for Coke and Pepsi.

Because the major players can rely on their strong, differentiated brands, they are able to

price their products substantially above long-term average costs1.

Secondly, the basic cost structure of the industry � low fixed costs relative to high

variable costs � helps concentrate producers avoid descending into stiff price

competition. The tendency for competing on price is further limited by Coke and

Pepsi’s near-century of competition � a history that has allowed them to learn how to

avoid destroying profits in mutually damaging price wars.

Third, concentrate providers have a strong strategic advantage vis-à-vis their suppliers.

Because the concentrate producers purchase undifferentiated raw materials from a large

host of supplier firms, they are able to avoid losing a significant portion of the value they

create in upstream market transactions. The upshot of this strategic advantage is that the

average concentrate provider spends only about 17% on direct costs of producing

concentrate. This allows Coke and Pepsi to invest in other aspects of the business �

brand recognition, retailer relations, and market research � that will help perpetuate these

strategic asymmetries and allow concentrate providers to continue capturing the lion’s

share of the value created by the entire soft drink industry.

1 Smaller brands charge substantially less than do Coke and Pepsi. Indeed, profitability for each producer

is in direct proportion to the strength of their relative brands. A comparison of net profitability for Dr.

Pepper, Seven-Up, and Royal Crown in Exhibit shows that profitability for Royal Crown � a company

with substantially less brand recognition than Dr. Pepper or Seven-Up � has historically lagged behind that

of Dr. Pepper and Seven-Up.

The typical concentrate production plant costs $5-$10 million and could supply the entire country. This

compares to $. billion capital investment required for bottlers to serve a commensurate demand.

Likewise, concentrate providers have a strong strategic advantage vis-à-vis their

customers. The large number of undifferentiated bottling companies allows concentrate

providers to shop around for the highest prices for concentrate, locking in the most

favorable returns in long-term contracts. This allows concentrate providers to avoid

losing a significant proportion of the value they create in their downstream market

transactions.

Finally, although producing the physical soft drink concentrate is a trivial industrial

exercise, the importance of brand recognition has created high barriers to entry. In fact,

Saloner, Shepard, and Podolny specifically cite Coke and Pepsi as having a “promotional

advantage of incumbency from cumulative investment.” This brand recognition helps

Coke and Pepsi perpetuate all of these strategic advantages by increasing the long-term

barriers to entry in the concentrate market, thus preserving Coke and Pepsi’s ability to

expropriate the vast majority of the value created along the entire value chain.

It is interesting to note that the concentrate providers have managed to isolate the one

aspect of the soft drink market that can provide ongoing positive returns. Although we

are used to thinking of soft drink production as being composed of several industries

along a multi-step value chain, the only reason it appears this way is because Coke and

Pepsi have been very adept at outsourcing virtually all aspects of the business that do not

provide long-term positive returns. In fact, it is likely that the only reason why Coke and

Pepsi continue to manufacture soft drink concentrate is that it is easier to promote the

brand if they can lay claim to producing the “essence of the product.” In pure economic

terms, however, the concentrate is simply yet another commodity input, whereas the

brand is the essence of the product.

Bottlers A Structural Analysis

By contrast, the soft-drink bottling industry exhibits all the signs of long-term unprofitability.

Bottlers face stiff competition in a highly fragmented competitive

landscape in 14, there were between 80 and 85 bottlers nationwide, each of which

produced an undifferentiated commodity. Moreover, as of 14, there are few � if any �

barriers to entry.

In direct contrast to Coke and Pepsi’s strategic advantage vis-à-vis their upstream

providers, bottlers face a far less hospitable environment in their market for raw

materials. Not only are there only a handful of concentrate providers, but two producers

� Coke and Pepsi � together make up almost 60% of the market for soft drink

concentrate.

This is aggravated by the extent to which the bottling company’s customers have

acquired an increasing amount of market power. WalMart’s huge size relative to other

retailers and its effective use of its own soft drink brand has put increasing pressure on

the prices that bottlers can charge to their retail customers.

This pressure is compounded by the basic cost structure of the bottling industry in which

high fixed costs relative to variable costs increase the incentives for short-term pricing

below average total costs. The upshot of all of these factors is an industry that earns zero

long-term economic profits.

Historical Relationship Between Bottlers and Concentrate Producers

Coke and Pepsi have long relied on exclusive bottling franchises as the primary method

of bottling and distributing their products. As of as of the early 180s, Coke and Pepsi

owned only 0%-0% of their bottling companies; the rest were either privately- or

publicly-owned franchises.

The historical relationships between concentrate providers and bottlers evolved as a result

of the underlying economics of the soft drink business. Using the analysis of Stuckey

and White, the industry displays the characteristics of one beset by vertical market

failure. In this case, however, the advantages of these market dynamics accrue to the

concentrate providers. Because there are many buyers (bottlers) and few sellers

(concentrate providers), sellers dominate the market. (This is illustrated in the diagram

below.)

Given that the majority of the value within the value chain resides in brand recognition

associated with concentrate production, Coke and Pepsi clearly benefit from outsourcing

bottling and distribution. Nonetheless, concentrate providers clearly need to assure that

their brands are not compromised by the manner in which bottlers and distributors market

and sell their products. Franchise arrangements have allowed concentrate prducers to

control their brands without diluting their own capital and management resources.

The specific terms of these franchise agreements demonstrate the extent to which

concentrate providers have managed to take advantage of the market dynamics and assert

control over the entire soft drink value chain. Concentrate producers used their own sales

and marketing organizations to promote soft drink sales. They also set production

standards to control soft drink quality. They also have gone so far as to mandate the DSD

(direct store door) delivery, effectively redistributing value within the supply chain from

the bottlers to the retailers.

The nature of this relationship, however, is not entirely expropriatory. Coke and Pepsi

clearly recognized the extent to which the strategic asymmetries surrounding the bottling

industry could very well lead to negative long-term economic profits and sup-par bottling

and distribution of soft drink products. In order to promote long-term health of the

bottling industry, Coke and Pepsi lobbied extensively for the 180 Soft Drink Interbrand

Competition Act�federal regulation that preserved the right of concentrate producers to

grant exclusive territories. In essence, this legislation, promoted the strategic advantage

of the bottlers vis-à-vis retail stores, transferring value from retail stores back to bottlers.

Vertical Integration Reasons and Rhetoric

Given the benefits provided by the franchise system, it is difficult to see why Coke and

Pepsi would want to vertically integrate into bottling. Yet this is exactly what they began

to do, starting in the mid-180s. According to Yoffie and Foley, Coke and Pepsi almost

doubled their reliance on company-owned bottlers between 180 and 1. The

“analyst’s reasons” for such expansion, however, make little economic sense.

Few Number of Buyers Many

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Weakened bottlers needed capital infusion and thus sought buyers. While it is perhaps

correct that the profitability of the bottling industry was declining through the late

seventies and early eighties, this can only be seen as an effect of the franchise agreements

� agreements put in place and enforced by the concentrate providers. Indeed, if

concentrate providers were really concerned about the long-term viability of the bottling

industry, they could have simply improved the terms of the franchise agreements. In

essence, then, this purported cause simply begs the question why did the concentrate

providers allow the bottling companies to reach such a weakened state that they had no

choice but to look for buyers?

Many bottlers were small and unable to handle the corporate goals in a particular

market. Once again, this does not address the question of why the concentrate providers

would need to purchase these bottling companies to address this issue. Indeed, if the

franchise arrangements were working well at the time � and all evidence seems to point

to their dramatic success � it would have been a better strategy to encourage the larger

bottling franchises to take over the small franchises. Given the financial resources of the

major concentrate providers, this seems like a fairly simple task, at least relative to

pursuing a policy of vertical integration.

Many bottlers were located near a company-owned bottler. It is difficult to see exactly

why this would help encourage a change in strategy of the major concentrate providers.

Presumably, there had been franchises located near company-owned bottlers in the

140s, 150s, 160s, and 170s, but it wasn’t until the 180s that Coke and Pepsi began

buying up independent franchises in earnest.

Many bottlers were under-investing. The major concentrate providers had long

encouraged bottling companies to increase their investment in various areas of the

business. For example, Coke and Pepsi’s push to have bottlers implement DSD is an

investment in their relationship with the various retailers. If the major concentrate

providers really wanted to encourage investment on the part of the bottlers, they could

have easily done so through modified franchise agreements. This would have achieved

the same ends, while keeping the balance sheet as trim as possible.

Understanding the Push for Vertical Integration

According to Stuckey and White, there are only four ways a company can benefit from

vertical integration

• Capturing market power of those in adjacent stages in the industry chain

• Increasing entry barriers and obtaining the opportunity to price discriminate

• Promoting the formation of a “mature market”

• Addressing vertical market failure

Unfortunately, none of these rationales provides a very satisfactory explanation of why

Coke and Pepsi began buying up their bottling franchises in the 80s and 0s. Indeed, the

first three reasons to vertically integrate have little to do with the reality of the soft drink

industry.

If Coke and Pepsi indeed pursued a rational policy, the only possible explanation is that

the two companies saw a potential change in the nature of the vertical market failure they

were facing. As the economies of scale in the bottling industry grew and the minimum

Ironically, this is the exact market dynamic that had long benefited the major concentrate providers and

provided an incentive for disaggregating concentrate manufacturing and bottling.

efficient scale of bottling increased, more and more bottling companies were destined to

go out of business. For example, between 160 and 18, the average bottling plant

volume increased from approximately 400,000 cases to .5 million cases.

It is possible that Coke and Pepsi foresaw a time when there would be only a handful of

bottling companies � a situation in which their market power would be seriously

compromised. In essence, then, perhaps Coke and Pepsi feared a transformation from

one in which there were few sellers and many buyers to one in which there were few

sellers and few buyers.

Perhaps both companies were attempting to promote their long-term strategic advantage

by locking in a set of relationships before the bottling industry began to consolidate in

earnest. This would accomplish two objectives. First, both companies would assure

themselves bottling capacity long into the future. Second, they would do so before they

had to pay for the long-term benefit of this strategic advantage. In other words, the price

of these acquisitions would rise disproportionately if Coke and Pepsi waited for

significant consolidation to occur within the industry.

If this were indeed the reasoning behind Coke and Pepsi’s rationale, pursuing a policy of

vertical integration would be justified in economic terms.

Perhaps, however, it is more likely that concentrate producers were merely working to

meet a set of irrational expectations of the investor community. If Wall Street analysts

sincerely believe the purported explanations set forth by Yoffie and Foley, it could make

sense from a short-term shareholder value perspective to vertically integrate into bottling.

Regardless of which explanation better fits the circumstances, it is clear that Coke and

Pepsi would only obtain true long-term value from these acquisitions if the bottling

industry were to further consolidate to the point that concentrate producers would no

longer be able to profit from the strategic asymmetries of the market. As of the date of

the HBS case study, this had not yet occurred and it was difficult to foresee whether or

not vertical integration would ever provide long-term value to the major players within

the soft drink industry.

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When I first started rapping, me and a couple brothers would all sit around my place freestyling while someone beat boxed. I even used to tell all the girls that I was a poet. They seemed to find it a little more touching than a rapper (Prince Paul, The Source 16) The lyrics of rappers are very similar to the words of Black poets. It is argued as to wether or not rap is a viable form of poetry. Both discuss similar subjects, write in the same style and use the same type of language in their writings. When looking at a poem or reading rap lyrics, distinguishing between the two can be difficult, if not impossible.

Both Black rappers and Black poets write about the same subjects. For example the rap group NWA, and the poet Alice Walker, both cover the topic of being from a minority race. Alice Walker states in one of her poems that there is no planet stranger than the one im from (Walker, Note Passed To Superman 18-1). What Alice is saying is that the world is strange because people judge others by their skin color. The approach NWA takes is a more presumptuous one. In the song Fuck Tha Police, NWA says Young nigga got it bad cuz im brown / And not the other color so police think / They have the authority to kill a minority (NWA Fuck Tha Police -5). Another common subect between Black poets and rappers is ghetto life. Nikki Giovanis poem called For Saundra is about how she is going to write a poem about trees and blue skies. Then she realized that she was living in a concrete jungle.

i wanted to write / a poem / that rhymes / but revolution doesnt lend / itself to bebopping / then my neighbor / who thinks i hate / asked -do u ever write / tree poems- i like trees / so i thought / ill write a beautiful geen tree poem / peeked from my window / to check the image / noticed the school yard was covered / with asphalt / no green - no trees grow / in Manhattan / then, well, i thought the sky / ill do a big blue sky poem / but all the clouds have winged / low since no-Dick was elected / so i thought again / and it occurred to me / maybe i shouldnt write / at all / but clean my gun / and check my kerosene supply (Giovanni For Saundra)

What all this is about is simply the reality of the urban ghettos. Gangstarr also writes lyrics pertaining to ghetto life. In the song In Memory Of, Gangstarr talks about life on the streets and how it is always a hard time for a black man trying to get by in society. If we dont build well be destroyed / Thats the challenge we face in this race of poor and unemployed (Gangstarr In Memory Of 11-1). Love and even more specifically, sex, are yet another subject shared by both rappers and Black poets. The lyrics in the song Brown Skin Woman by KRS-1, are discussing the love for the brown woman and also sex with the brown woman. Haki Madhubuti also writes his poems about love and sex. In the poem My Brothers, Haki is sending a message to the other black males about how they should start to love and respect the females of the black race. My brothers i will not tell you who to love or not love i will only say to you that Black women have not been loved enough (Madhubuti My Brothers 1-6). Wether it be about sex, racism or life in the ghettos, Black poets and Black rappers share the same views and write about the same subjects.






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MONET mania came home this week as an exhibition which brings together the largest collection of the Impressionist master’s paintings of water lilies opened on Thursday at the Musee de l’Orangerie in Paris.

Unlike the recent blockbuster show in London, which concentrated on the 0th-century works, the new Paris exhibition focuses exclusively on Monet’s paintings of the white water lilies in his garden at Giverny, a subject which obsessed him during the last 0 years of his life as he battled encroaching blindness to capture their shimmering beauty before it was too late.

It is a unique event which could only happen at the Orangerie as the exhibition’s centre-piece, the majestic eight-panel mural of water lilies which Monet gave to the state in 1, is actually built into the curved walls of the museum itself and cannot be moved. The mural, which is the crowning achievement of the water lily paintings, is crucial to understanding their development and the show offers art-lovers the final chance to see it for some time as the Orangerie will close for two years of renovations once the exhibition ends on August .

More than merely a set of paintings, the water lilies make up a true cycle, numbering nearly 50 paintings in various styles and sizes. The Paris exhibition brings together 60, from public and private collections all over the world, from Minneapolis to Munich, Cardiff to Kita-Kyushu in Japan. Particularly impressive are two large compositions which have been lent by the Museum of Modern Art in New York.




Monet began the paintings after creating the celebrated garden at Giverny, with its Japanese bridge and ornamental pond in which he grew the white lilies “as a subject for painting” and where he lived from 188 until his death 4 years later. He became so absorbed by his subject that he would begin as many as 14 paintings at once, all treating the same motif, but each reflecting the shifting light on the lily pond at different hours of the day.

“I am absorbed in my work. These landscapes of water and reflections have become an obsession for me. It is beyond my strength as an old man and yet I so want to render what I feel…” he wrote to a friend in 108 as he began to be troubled by the cataracts which were to leave him nearly blind.

Astonishingly, it is during this period that he produced much of his finest work, despite suffering terrible bouts of discouragement. He even destroyed some panels and almost failed to honour his commitment to his old friend, the politician Georges Clemenceau, to whom he had promised in 118 to donate several paintings to the country.

Monet and Clemenceau were close friends, sharing a love of art and gardening and it was the politician who encouraged Monet to undergo a successful operation in 1 which restored his failing sight, allowing him to continue to paint until his death in 16.

“Paint, paint always, until the canvas is worn out. My eyes need your colour and my heart is happy with you.” Clemenceau wrote to him. As the legion fans of today’s most popular artist flock to this new exhibition in Paris to stand in awe before his depictions of light, water and lilies, many will wish they could express their love and admiration for Monet as eloquently.





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