AEM 3310
Introduction to Business Regulation
Final KEY
May 13, 2015

NAME: _______________________________________
Please write all answers on this sheet. If you run out of space please continue on the back, being certain to identify the question number with each answer.
By completing this exam you are pledging to abide by the Cornell Code of Academic Integrity.
DEFINITIONS (please be sure to note the class context of each term, e.g., communication regulation and identify the applicable regulations if relevant) (5 points each)

1. Accredited Investor
Under the JOBS Act individuals meeting certain income/net worth requirements are permitted to invest specified portions in JOBS Act-related IPOs.

2. Warning Letter
Correspondence from the FDA advising a firm of a violation of the Federal Food, Drug and Cosmetic Act detected during an inspection or investigation.

3. MSA
Metropolitan Statistical Area – urban areas as defined by the Census office – often used to define local markets for antitrust enforcement

4. Blue Sky Laws
State level laws which controlled the offering and sales of securities prior to federal regulation.

SHORT ANSWER (10 POINTS EACH)

5. While most regulations we examined fit specifically into a single category like consumer products and food safety, environment, communications or financial, at least one crosses categories. Please identify one by name, specifying the two categories it intersects with.
Consumer Financial Protection Bureau – established under Dodd-Frank and operating within the Fed (and hence associated with financial regulation) its mandate is to assist and protect individuals in matters regarding finance (and so related to consumer issues) 6. During Ms. Saini’s guest lecture we learned about the extensive detail of food labeling regulations, not only what must be included but where on the label it must be placed, font size, etc. Might that all be considered to be an example of excessive regulation serving no real purpose? Why or why not?
As she explained, if labeling regs are not very specific then some firms will attempt to skirt them by making potentially negative label information very difficult to assess and/or by placing it inconveniently on the label, or in tiny, obscure script. Hence the detailed mandates have evolved to avert ‘cheating’ and to create a level playing field for firms.

LONG ANSWER (20 POINTS EACH; PLEASE ANSWER 3 OF 4) 7. It is sometimes said that US regulations are imposed in a crisis, overacting to the problem, leading over time to a more measured view and deregulation, sometimes followed by a second related crisis, and the cycle begins anew. Please identify and describe one such regulatory cycle. For full credit you will need to identify the specific regulations involved.
The most obvious example is with financial regulation. Pre-Great Depression there was essentially none. Then with the Glass-Steagall Act (1933) commercial and investment banking were separated and the Securities Exchange Act (1934) required financial information about publicly held corporations be provided and/or Truth in Securities Act (1933) (also referred to as the Securities Act) which mandated a sale of a publicly held company be registered with the SEC. The economy stabilized and 1999 the Gramm–Leach–Bliley Act repealed parts of Glass-Stegall, notably allowing banks to combine commercial and investment banking activities. Not too long thereafter there came the financial crisis of 2007-08 due in part to speculation by major banks, which led to the Dodd-Frank Act (2010) with multiple components. Efforts by financial interests subsequently have been softening/delaying aspects, such as moving swap trading onto public exchanges. 8. The JOBS Act in effect removes/relaxes a number of regulations for Emerging Growth Companies. Please identify two of those regulations and describe how the change is intended to expedite the IPO process.
The principal acts involved are the Securities Exchange Act (1934) and the Truth in Securities Act (1933) (also referred to as the Securities Act) which specify the information which must be supplied for the sale of securities as well as the timing of the release of that information (i.e., the ‘quiet period’) along with the number of investors authorized pre-IPO. The JOBS Act expands 10-fold the number of pre-IPO investors as well as relaxing the disclosure standards while allowing direct sales of the securities to individuals. Those changes are intended to lessen the cost burden on IPOs for Emerging Growth Companies (revenues < $ 1b) and so to increase participation in IPOs as a means of accelerating small firm growth. 9. In our overview of a number of regulatory agencies we have seen several organizational arrangements for the regulators, including commissions (FCC, FTC, etc.) and agencies with multiple director (although there is usually a chairperson; Nat. Labor Relations Board) and those with a single director (EPA, FAA). Please identify which structural arrangement you believe allows the greatest amount of autonomy for the regulatory body, explaining your reasoning and supporting with an example of regulatory autonomy.
Generally commissions are accorded greater autonomy than are agencies. The recent ‘net neutrality’ decision by the FCC is an example of the independence of a commission as there were calls from powerful individuals in both major parties to support or not that decision. Next would be agencies with a single head, as it is easier for an individual to act forcefully. The EPA decisions on regulating greenhouse gasses are examples. 10. The AT&T/Direct TV merger proposal remains under regulatory review. Does it involve horizontal (w/competitors), vertical (w/suppliers) or both elements? How so?
Emphasis for the answer is on TV and internet transmission; it is not required to have detailed knowledge of any other businesses owned by the companies. Unlike the Comcast/TW merger proposal this one very much involves horizontal competition issues. That is, AT&T with cable TV and internet competes in local markets with Direct TV which provides satellite-based TV programming. The merger would not increase AT&T’s share of internet subscribers at the national level, but could reduce competition at the local level as AT&T and Direct TV are potential competitors for TV cable customers. Under the Telecommunications Act of 1996, satellite TV was seen as a competitive force for the cable TV sector. There will be national vertical competition issues as well for a combined AT&T Direct TV will represent more TV subscribers and hence give the combined firm more sway with content providers.
POSSIBLE OPTIONAL LA QUESTION: The panel discussion we skipped was to have been titles “Regulating cable and the internet in an era of changing technology”. Please describe two new/revised/deleted regulations which you think would be appropriate for regulating the internet in the years ahead.