1. Threat and blackmail in
business relations
Balázs Hámori
Corvinus University

2. Exchange as a form of aggression
Nobody ever saw a
dog make a fair and
deliberate exchange
of one bone for
another with another
dog.”
(A. Smith)

3. Aggression and blackmail as a part of
„normal” exchange
„People’s effort…can aim on the
one hand to produce or to
transform economic goods, on the
other hand to acquire or to
expropriate goods produced by
others.”
(V. Pareto)
Although humans emerge from
their environment by their
willingness to exchange (and
behind that of sharing), but this
does not mean that aggression,
threat or blackmail would not be a
frequent element of normal
exchanges.

4. Apple fair
 The normal price of apples during the day is
6 dollars, and the seller will offer them for 5
dollars to the late buyers.
 However, the buyers counter-offer is only 1
dollar.
 If the seller can force her price on the buyer,
then she wins 5 dollars (compared to 0,
since otherwise she would throw them into
the trash), while the buyer would only win 1
dollar since he buys only 1 dollar less than
the daily price.
 If on the other hand the buyer proves to be
the more forceful and buys the apples for 1
dollar, then he will win 5 dollars, and the
seller will win 1 compared to 0.

5. Everybody wins
There is a third possibility: the bargain,
where both side will concede from their
prices, and they will agree on a 3 dollars
price. This would result in a 3 dollars
payoff for both. The buyer will get the
apples for 3 dollars less, and the seller will
get 3 dollars instead of throwing them into
the trash.

6. Effective threat
The seller: will rather throw them into the
trash, but she will not give them away for
less.
The buyer: will rather waive the special
buy, but he will not give more for the
goods
Both have to make the other believe, that
he or she is willing to go all the way, and
are even willing to hurt themselves.

7. The model of everyday agression
Seller
Withdrawal Holding the offer
Withdrawal 3,3 1,5
Buyer
Holding the offer 5,1 0,0

8. The game of teenagers from Los Angeles
In this „tame” and „simple” exchange act –
surprisingly – in terms of game theory we
speak exactly about the same thing as in
the case of the Chicken game, which was
used to model the Cuban missile crisis of
1962, that threatened the world with a
nuclear war.

9. The burning of the bridges
I must concede, because he will not. He
will not concede, because he thinks that I
think that he thinks, that I think…
In bargains weakness is often strength,
freedom can be the freedom to surrender,
and the burning of the bridges behind us
can be enough to conquer our opposition
Thomas Schelling

10. Blackmail is present in every normal
bargain
Trading acts – by nature reflect certain
aspects of market actors’ aggressiveness
In transition economies, institutions, values,
the attitudes of market actors differ from the
practices of developed market economies.
Often they have dual nature.

11. A modern tale of goose farming
 Z have a goose farm in the
Hungarian country side. He
does not own the geese, but he
receives money for raising them
through the eggs taken away by
the owner Dr. B. But after a
while, Dr. B does not pay,
because he had a bad year.
 Z had talked to his lawyer, who
said that according to the
contract he has the right to
keep the geese as a security,
but in practice „the geese
belongs to who ever is the
stronger”.

12. Dr. B as a tyrant
 The next day Dr. B. arrived with two trucks, with two car
loads of men and three huge thugs. Z did not let them in.
Dr. B. ordered his men to enter. The thugs did not initiate
violence, rather they provoked Z, so he would loose his
cool first.
 The battle went on, while Z received serious threats „his
family can get hurt, his car can be wrecked, his farm can
burn down”.
 This is what happened. I think it is a typical Hungarian
story of a non-paying entrepreneur, who threatens others
besides causing them to go bankrupt. These people
think „they are allowed more than others”.

13. Typical blank contracts
 Public utility services
 During the past years the rates of these services has
multiplied, and probably they include several types of
costs that are unduly passed onto the consumers.
 The raise in the service rates do not entail a
simultaneous raise in the quality levels of services.
 The consumers do not have the opportunity to monitor or
influence the quality and rates of services.
 The relationship between public utility service providers
and consumers in market economies should be based
on a civil law contract between equals. Unfortunately,
our experience shows that consumers cannot sense this.

14. A basic element of market relations is
missing: equality
 From the beginning of 90s these contract were
signed for several years.
 Today they sign so called blank contracts, where
the consumer is even forced to accept
disadvantageous terms.
 The other problem is that in these contracts the
service provider does not call the attention of the
consumer to such points that later can cause
one-sided advantages to the service provider.

15. The exchange partner as the authority
 This is only good for those who offer. This extraordinarily
simplifies life. Besides this, of course, it could be correct, but
since the text of the blank contract is worded by one side
without the contribution of the other side, the legal principle
of equality is usually not met.
 Despite of this, partially because of the economic dominance
of the service providers, and partly because they generate a
completely official appearance to a civil law agreement, the
majority of the people do not dare to formulate any
objections, and although wryly but still they will sign the blank
contract even if they do not like it.
 This way the calculation of the stronger party comes through.

16. Labor relation covered by entrepreneurial
contact
 Workers mostly sign and work under entrepreneurial or
assignment contracts not because of their own accord,
but out of necessity.
 This is disadvantageous for them, since this way they
are not under the safety cover of the Labor Code or in a
given situation under the collective bargaining
agreement, and they are not entitled to those rights and
benefits included in these.
 With a contract, employees cannot count on „term of
notice”, severance pay, and they are in a
disadvantageous situation when calculating „sick-pay”
and pensions.

17. Travel Contracts
 Although these are signed
based on the civil code, still
one side – namely the
traveler – is more
defenseless than the other
side – the service provider.
The travel service provider,
because of his/her market
knowledge, information,
communication channels,
and his expert colleagues
has an extra advantage.

18. Mediline
 „On September 8th I ordered two vacuum mattresses with
protective cover from the Mediline International Trade Ltd. for
199.990, - Forints. On September 10th I visited Mediline Ltd. at
their headquarters and I canceled my order. On September 15th I
received their 1st letter, and next day I made the indemnity
payment of 55000 Forints stated in the letter. I find it unfair that
for signing a contract form I have to pay out 55000 Forints”
(customer)
 The company does not allow for his contractual customers the
right of withdrawal that is a costumer protection guarantee stated
in a given governmental decree.
 The consumer can withdraw from the contract within 8 working
days from signing the contract without justification and without
making any indemnity payment.
 THE CONSUMER CANNOT WAIVE THIS RIGHT IN A
BLANK CONRACT

19. Beware of the small text! –
or the contractual aggression
 Therefore, a contract is
often not an agreement
of equals, but a
document prepared by
one side and
advantageous to that
side and forced upon the
other party
 Blank contracts
 Terms that are
misleading or made to
appear as insignificant
(often against the law)

20. Chain stores are passing the expenses of
competition onto the producers – minimal margins
 listing fee, Sale prices: during one
 shelf money, sale they ask for 10-
 „merchandising fee”, 12% discount from the
 „marketing contribution”,
suppliers,
 commission paid after Promotional
turnover, contribution
 bonuses, (for instance the renting
 fee for being on the list, of cooling boxes, or the
 Central administrative payment for the costs
commission. of tasting is also
expected.)

21. French example
 Five large chain (Auchan,
Casino, Carrefour, Lucie,
and Inter) dominates 86
% of the market
 96% of the suppliers of
mass consumer’s goods
are SME-s, whose
products are responsible
for only 19% of the
revenues of the large
chains.
 The chains utilize the so
called cannibalistic
pricing against the small
ones, based on „twisting
the arms” of the suppliers

22. World phenomenon
 The producers, supplier and their associations
are afraid that their products will be bought by
fewer and fewer and purchasing will be more
concentrated. They are especially apprehensive
of the wider spread of the new marketing and
commercial instruments like the discounts based
on quantities and the listing fees.
(US Census Bureau [2000])

23. The cartels of aggression
Commerce of excise goods.
A billionaire Hungarian
company after privatization
monopolized commerce.
Five large multinational
producers asked: split the
company into five parts and
give them a stake.
They did not do it.
Cannibalistic pricing
Failure
Revenge: ordered a huge
quantity, and did not pay: „exit
fee”.

24. The characteristics of Eastern mafias
compared to their Western counterparts
East West
More diversified, It is concentrated:
Area of activity because of more protection, drugs,
economic uncertainty prostitution
Violent, causeless,
Aggression and terror Sophisticated
bloody
Upper social strata,
Origin Lower social strata
old nomenclature
Relationship to the Intertwined, tight
Separated, hostile
state relationship
Whole industries, Restricted economic
Scope
regions, countries segments
Reaction of the Dismissive,
Apathetic, supporting
society condemnatory

25. Aggression in East-Central Europe
What can explain that in the East-Central
European, still developing markets the
aggressive, blackmail type, mafia-like
economic activities are rapidly growing,
even though
 the basis of market economy – per
definition – is the mutuality between
actors, equality, correct and calculable
behavior?

26. Tentative answer
The first possible answer is that market
activity genetically includes the possibility of
the actors’ aggressive behavior
and
if this possibility is connected to the instability
of the developing market institutions, because
of the situation the aggression of the actors
can increase.

27. The reasons behind the spread of
aggression (1)
The socialist heritage of unequal seller-
buyer relationship
The absence of organically developed
market institution: artificial, not generally
accepted solutions
Specific ownership rights, the absence of
the respect towards others’ properties
Moral uncertainty as a result of the deep
changes

28. The reasons behind the spread of
aggression (2)
 Incapability of the state,
questioning of state authority.
There is no power that could
observe the rules.
 The statistical chance of
convicting criminals is small.
 Punishments are not really
dissuasive.
 Increasing global competition
have an influence on the
increase of aggression.

29. The limits of aggression
Only such wealth can be taken away, expropriated, that
was once developed by someone.
If those utilizing aggression completely destroy their
partners, then at the end there will be no one to take away
their properties from.
Taking away and production under all circumstances
must remain in equilibrium.
If in an economy the rules of the dogs’ world prevail,
then that economy will „sit down”
Therefore, in all specific cases there are well-defined
limits to economic aggression

30. Conclusion
The public and the elite
of the ex-socialist
countries were not ready
for the Janus-face of
market economy, so
they do not have the
appropriate instruments
to influence the
processes and the
motivation of actors.