Q. 27.4 LO An years past, firms around the ... [FREE SOLUTION]

Chapter 27: Q. 27.4 LO (page 600)

An years past, firms around the world have secretly engaged in collusive agreements to restrain production and push prices above competitive levels.
Evidence compiled by government officials investigating such agreements has revealed that conspiring firms often utilize similar methods of establishing and enforcing collusive restraints of trade. Most agreements, for instance, assign to each firm an allowed market share, a permitted region of operations, or an approved set of customers. In addition, participating firms commonly are required to exchange sales information so that they can monitor adherence to their agreements to restrain trade. In this chapter, you will learn why firms that typically utilize these techniques to formulate and maintain collusive agreements engage in secret conspiracies: Such agreements are illegal under U.S. antitrust laws.
Identify alternative theories aimed at explaining the behavior of regulators

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Given information

A theory of control is a system of beliefs or predictions describing why control arises, which stakeholders influence its inception, and the prevalent tendencies of administrative actor interaction.

Explanation

The regulations intend to discourage the people to smoke cigarette as it is considered injurious to health as they cause lung cancer, breathing disorders and other medical complexities. It is researched and discovered that higher tar content of cigarette as it burns in course of smoking goes down the lungs and block the bronchitis. This reduces the oxygen carrying capacity of the blood. The severity of lung problems would depend on the level of tar contents of the cigarette.

Despite the risk that cigarette causes to life, cigarette smoking is high in demand among youths and professionals due to high levels of addictions and for the reason that cigarette smoking has become symbol of matured personality or high status. The only threat that keeps cigarette chain smokers from smoking larger numbers of cigarette is that it is injurious to health as it causes lung cancer.

Explanation

If such threat is either diluted or eliminated, people will start smoking higher numbers of cigarette unrestrictedly.

This is what would happen, if federal drug administration authorizes cigarette manufacturers to label the cigarette packet as "low tar". Instead of discouraging people to smoke more, such label will induce them to purchase higher packs of cigarette for smoking. Such label would tend to send message to the people at large that "Low tar" cigarette is more healthful than cigarette pack with no label and incentivize them to smoke more.