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    First Look: November 4

    First Look

    04 Nov 2014

    Behind The Negotiations For house Of Cards

    When Netflix announced its intention to carry the political drama House of Cards, it was the first time the company forayed into original programming. But the risk was also high for the show's production company, Media Rights Capital. A new case by Anita Elberse, "MRC's House of Cards," looks at MRC's decision to forego a possible agreement with a traditional premium cable network.

    A Better Understanding Of Crony Capitalism

    Professor emeritus Malcolm S. Salter explores the idea and reality of crony capitalim in a new working paper. "This paper seeks to reduce the ambiguity surrounding our understanding of what crony capitalism is, what it is not, what costs crony capitalism leaves in its wake, and how we might contain it," according to Salter. The paper, "Crony Capitalism, American Style: What Are We Talking About Here?," is available on SSRN.

    Improving Efficiency At Disney Animation

    In March, the Disney feature Frozen became the highest grossing animated feature ever. In some ways it was a capstone for Jonathan Geibel, Director of Systems at Walt Disney Animation Studios, who led a team to make Disney more cross-disciplinary and dynamic. But as a new case by Amy C. Edmondson and coauthors points out, Geibel understands his work is just beginning. Read the case, "Teaming at Disney Animation."

    —Sean Silverthorne
    LinkedIn
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    Publications

    • November 2014
    • Centro de Estudios Espinosa Yglesias

    Los Buenos Tiempos Son Éstos: Los efectos de la incursión de la banca extranjera en México después de un siglo de crisis bancarias [These Are the Good Old Days: Foreign Entry and the Mexican Banking System].

    By: Haber, Stephen, and Aldo Musacchio

    Abstract—This book is the Spanish edition of our award winning paper "These Are the Good Old Days: Foreign Entry and the Mexican Banking System." NBER Working Paper Series, No. 18713, January 2013. The book examines the effects of foreign bank entry into Mexico. Foreign banks now own over 80% of banking assets in Mexico, and we show how, using a political economy model and a series of econometric tests, this has helped to stabilize the system and reduced non-performance loans, but it has also increased the risk aversion of banks operating in Mexico. Therefore, we conclude, after one century of banking crisis this is the best of times for Mexican banking.

    Publisher's link: http://www.library.hbs.edu/forms/purchaseform/

    • November 2014
    • Journal of Competition Law & Economics

    Leveraging Market Power Through Tying: Does Google Behave Anti-Competitively?

    By: Edelman, Benjamin

    Abstract—I examine Google's pattern and practice of tying to leverage its dominance into new sectors. In particular, I show how Google used these tactics to enter numerous markets, to compel usage of its services, and often to dominate competing offerings. I explore the technical and commercial implementations of these practices and then identify their effects on competition. I conclude that Google's tying tactics are suspect under antitrust law.

    Publisher's link: http://www.benedelman.org/publications/google-tying-2014-10-26.pdf

    • November 2014
    • Organizational Behavior and Human Decision Processes

    Poker-faced Morality: Concealing Emotions Leads to Utilitarian Decision Making

    By: Gino, Francesca, and J.J. Lee

    Abstract—This paper examines how making deliberate efforts to regulate aversive affective responses influences people's decisions in moral dilemmas. We hypothesize that emotion regulation-mainly suppression and reappraisal-will encourage utilitarian choices in emotionally charged contexts and that this effect will be mediated by the decision maker's decreased deontological inclinations. In Study 1, we find that individuals who endorsed the utilitarian option (vs. the deontological option) were more likely to suppress their emotional expressions. In Studies 2a, 2b, and 3, we instruct participants to either regulate their emotions, using one of two different strategies (reappraisal vs. suppression), or not to regulate, and we collect data through the concurrent monitoring of psycho-physiological measures. We find that participants are more likely to make utilitarian decisions when asked to suppress their emotions rather than when they do not regulate their affect. In Study 4, we show that one's reduced deontological inclinations mediate the relationship between emotion regulation and utilitarian decision making.

    • November 2014
    • Journal of Marketing Research

    Cost Conscious? The Neural and Behavioral Impact of Price Primacy on Decision-Making

    By: Karmarkar, Uma R., Baba Shiv, and Brian Knutson

    Abstract—Price is a key factor in most purchases, but it can be presented at different stages of decision making prior to a purchase. We examine the sequence-dependent effects of price and product information on the decision-making process at both neural and behavioral levels. During functional magnetic resonance imaging, the price of a product was shown to participants either before or after the product itself was presented. Early exposure to price, or price primacy, altered the process of valuation, as seen via altered patterns of activity in medial prefrontal cortex immediately prior to purchase decisions. Specifically, whereas viewing products first resulted in evaluations strongly related to products' attractiveness or desirability, viewing prices first appeared to promote overall evaluations related to products' monetary worth. Consistent with this framework, we show that price primacy can increase purchase of bargain priced products when their worth is easily recognized. Together, these results suggest that price primacy highlights considerations of product worth and can thereby influence purchasing.

    Publisher's link: http://dx.doi.org.ezp-prod1.hul.harvard.edu/10.1016/j.worlddev.2014.08.016

    • November 2014
    • World Development

    What Do State-Owned Development Banks Do? Evidence from BNDES, 2002-09

    By: Lazzarini, Sergio G., Aldo Musacchio, Rodrigo Bandeira-de-Mello, and Rosilene Marcon

    Abstract—Defenders of state-owned development banks emphasize their role in reducing capital constraints and fostering productive investment; detractors point out that they may benefit politically connected capitalists or bail out inefficient firms. We study the effect of loans and equity investments of the Brazilian National Development Bank (BNDES) and find that they do not have any consistent effect on firm-level performance and investment, except for a reduction in financial expenditures due to the subsidies accompanying loans. However, BNDES does not systematically lend to underperforming firms. Our results indicate that BNDES subsidizes firms that could fund their projects with other sources of capital.

    Publisher's link: http://www.sciencedirect.com.ezp-prod1.hul.harvard.edu/science/article/pii/S0305750X1400254X

    • November 2014
    • Special Issue on Governments as Owners: Globalizing State-Owned Enterprises

    Governments as Owners: State-Owned Multinational Companies

    By: Musacchio, Aldo, Alvaro Cuervo-Cazurra, Kannan Ramaswamy, and Andrew Inkpen

    Abstract—The globalization of state-owned multinational companies (SOMNCs) has become an important phenomenon in international business (IB), yet it has received scant attention in the literature. We explain how the analysis of SOMNCs can help advance the literature by extending our understanding of state-owned firms (SOEs) and multinational companies (MNCs) in at least two ways. First, we cross-fertilize the IB and SOEs literatures in their analyses of foreign investment behavior and introduce two arguments: the extraterritoriality argument, which helps explain how the MNC dimension of SOMNCs extends the SOE literature, and the non-business internationalization argument, which helps explain how the SOE dimension of SOMNCs extends the MNC literature. Second, we analyze how the study of SOMNCs can help develop new insights of theories of firm behavior. In this respect, we introduce five arguments: the triple agency conflict argument in agency theory; the owner risk argument in transaction costs economics; the advantage and disadvantage of ownership argument in the resource-based view (RBV); the power escape argument in resource dependence theory; and the illegitimate ownership argument in neoinstitutional theory. After our analysis, we introduce the papers in the special issue that, collectively, reflect diverse and sophisticated research interest in the topic of SOMNCs.

    Publisher's link: http://www.palgrave-journals.com.ezp-prod1.hul.harvard.edu/jibs/journal/v45/n8/pdf/jibs201443a.pdf

     

    Working Papers

    Price Coherence and Excessive Intermediation

    By: Edelman, Benjamin, and Julian Wright

    Abstract—Suppose an intermediary provides a benefit to buyers when they purchase from sellers using the intermediary's technology. We develop a model to show that the intermediary would want to restrict sellers from charging buyers more for transactions it intermediates. With this restriction an intermediary can profitably raise demand for its services by eliminating any extra price buyers face for purchasing through the intermediary. We show that this leads to inflated retail prices, excessive adoption of the intermediaries' services, over-investment in benefits to buyers, and a reduction in consumer surplus and sometimes welfare. Competition among intermediaries intensifies these problems by increasing the magnitude of their effects and broadening the circumstances in which they arise. We discuss applications to payment card systems, travel reservation systems, rebate services, and various other intermediaries.

    Download working paper: http://www.benedelman.org/publications/pricecoherence-2014-10-21.pdf

    Finance and Social Responsibility in the Informal Economy: Institutional Voids, Globalization, and Microfinance Institutions

    By: Liang, Hao, Christopher Marquis, and Sunny Li Sun

    Abstract—We examine the heterogeneous effects of globalization on the interest rate setting by microfinance institutions (MFIs) around the world. We consider MFIs as a mechanism to overcome the institutional void of credit for small entrepreneurs in developing and emerging economies. Using a large global panel of MFIs from 119 countries, we find that social globalization that embraces egalitarian institutions on average reduces MFIs' interest rates. In contrast, economic globalization that embraces neoliberal institutions on average increases MFIs' interest rates. Moreover, the proportions of female borrowers and of poorer borrowers negatively moderate the relationship between social globalization and MFI interest rate, and positively moderate the relationship between economic globalization and MFI interest rate. This paper contributes to understanding how globalization processes can both ameliorate and exacerbate challenges of institutional voids in emerging and developing economies.

    Download working paper: http://ssrn.com/abstract=2512211

    Crony Capitalism, American Style: What Are We Talking About Here?

    By: Salter, Malcolm S.

    Abstract—This paper seeks to reduce the ambiguity surrounding our understanding of what crony capitalism is, what it is not, what costs crony capitalism leaves in its wake, and how we might contain it.

    Download working paper: http://ssrn.com/abstract=2513490

     

    Cases & Course Materials

    • Harvard Business School Case 615-023

    Teaming at Disney Animation

    Jonathan Geibel, Director of Systems at Walt Disney Animation Studios, walked through the workspace occupied by the group he had been tasked to lead. Geibel knew he was part of a creative and magical environment. The Disney studio had created more than 53 feature animated films in over three-quarters of a century-beginning with Snow White and the Seven Dwarves in 1937 through to Frozen, released in November of 2013 and awarded the Oscar® for Best Animated Feature in March 2014, the first Academy Award® in that category for Walt Disney Animation Studios. In late March 2014, Frozen became the highest-grossing animated feature, worldwide, of all time. There was a period in the history of the 90-year-old studio, not so many years ago (and prior to John Lasseter and Ed Catmull's leadership), when Walt Disney Animation Studios had become more structured and hierarchical, and it wasn't always easy to work across departments to innovate. Yet the work, which involved both high-tech computer animation and creative storytelling, was more cross-disciplinary and dynamic than ever. Geibel wondered what he and Ron Johnson, whom he hired and teamed up with to re-envision the Systems group within Disney Animation, could do to improve the flow and the efficiency of the organization's increasingly technical and creative work. Geibel and Johnson had already made dramatic changes in the work structure and in the physical space to promote the effective teamwork that was so essential to producing compelling, engaging animated films. Now it was time to figure out how well the changes were working and what further changes, if any, were necessary.

    Purchase this case:
    http://hbr.org/product/Teaming-at-Disney-Animati/an/615023-PDF-ENG

    • Harvard Business School Case 515-003

    MRC's House of Cards

    In March 2011, Asif Satchu and Modi Wiczyk, co-chairmen and co-chief executive officers at independent production company Media Rights Capital (MRC), are debating whether to accept a licensing offer from Netflix for their most ambitious project to date, a new television series called House of Cards. MRC executives had begun to pitch the series to the major premium cable networks in the U.S., including AMC, FX, HBO, Showtime, and Starz. To the surprise of the two entrepreneurs, Netflix executives had made it known they were prepared to make a bold step into the world of original programming. As thrilled as Satchu and Wiczyk were about Netflix's offer, accepting it-and thus forgoing a sought-after one-season offer from a traditional premium cable network-raised major concerns, for instance about MRC's ability to secure international rights fees, to obtain sufficient marketing support, to gain the necessary credibility in the marketplace, and to satisfy artists and other key constituents. Was Netflix the right partner for MRC?

    Purchase this case:
    http://hbr.org/product/MRC-s-House-of-Cards-/an/515003-PDF-ENG

    • Harvard Business School Case 215-006

    Rick's Dilemma

    In 2014, Rick is serving as a trustee for a large family trust whose principle asset is a plot of prime real estate in the Upper East Side of Manhattan. The land is currently subject to a ground lease that pays $4.6 million annually, with resets every 20 years at 4.5% of the appraised value of the land. The next reset is in 2022, and in the meantime Rick must make a decision on whether it might be better for the trust's beneficiaries to sell the land early. If so, what price should he seek?

    Purchase this case:
    http://hbr.org/product/Rick-s-Dilemma/an/215006-PDF-ENG

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