Skip to content

Leslie Budd on... risk

video
Posted under Business Studies

Leslie Budd looks at how systemic risk and regulatory risk affect business and competition

18 Mar
2010

Video

You need the Flash Player (version 7 or higher) to view this clip - download Flash. http://media.open2.net/bottomline/20100320/leslie_risk.flv Copyrighted The Open University

Audio

Save this MP3 file to your computer You need the Flash Player (version 7 or higher) to use our MP3 player - download Flash. Copyrighted The Open University Download What can I do with this?

Text

Businesses are competitive but often don’t like competition because price wars can lead to a zero sum gain. Similarly, businesses bemoan regulation and cite trivial examples to support their case, yet regulation sustains their competitive environment. The outcomes of these paradoxes have been amply demonstrated by recent events, and the incentives for firms to cooperate and supposedly collude. In industries dominated by large firms rumours abound of secret annual meetings in which prices are set. What connects all these things is risk.

There are many types of risk but I wish to concentrate on two; systemic risk and regularity risk. Systemic risk occurs when there is a threat to the economy or the financial system as a whole. Regularity risk occurs when new laws and regulations challenge business activity.

Let’s look at this example, or an example in practice. The world’s three largest iron ore producers are currently negotiating their annual price contracts with their customers. One of them has proposed an 80% increase for European steel makers and 100% for Chinese ones. The others have not yet set out their stall, but if this price increase becomes the norm then there is a danger of systemic risk increases as European steel makers migrate or go bust.

Consequently, there may be regularity risk for the iron ore producers in that their customers may seek government intervention to combat the monopoly power of this global triumphant. In this context the bottom line is that if you cooperate just in the interests of your industry short-term increases in economic rents may lead to the zero sum gain of less wealth creation in economies and markets elsewhere.

That’s my view, you can join the debate with the Open University.

This week on The Bottom Line

Rate and share this page:

You haven't rated. Average rating 5 out of 5, based on 1 rating

Share this page:

.

More like this

Comments

Be the first to post a comment.

Login or Register to post comments

Article Information

Publication details
Thursday, 18th March 2010
Thursday, 18th March 2010

Copyright information
• Body text - Copyrighted: The Open University
• Video - Copyrighted: The Open University
• Audio - Copyrighted: The Open University

Article Feeds

If you enjoyed this, why not follow a feed to find out when we have new things like it? Choose an RSS feed from the list below. (Don't know what to do with RSS feeds?)
Remember, you can also make your own, personal feed by combining tags from around OpenLearn.

About OpenLearn

Hide

Explore

Try

Study

OU Courses

OpenLearn Now

Hide

Tag Clouds

Hide

My Cloud

Discover the latest about your passions - Sign In or Register and start a personal tag cloud.

What are Tag Clouds?
http://www.open.edu/openlearn/sites/all/themes/ole/flash/tagcloud.swf

Creative Commons License Except for third party materials and otherwise stated, content on this site is made available
under a Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Licence

/openlearn/sites/all/themes/ole/