Bam406sg 0709

BAM 406
Business and Society

Text: Business and Its Environment
6th Edition, 2010 ISBN-10: 0136083927
Authors: Publisher:
David P. Baron
Pearson Prentice Hall
700 North Main Street, Santa Ana, CA 92701

07/09
Phone: 714-547-9625
Fax: 714-547-5777
Study Guide

Message From the President
elcome to California Coast University. I hope you will nd this course interesting and useful throughout your career.
This course was designed to meet the unique needs of students like you who are both highly motivated and capable of completing a degree program through distance learning. Our faculty and administration have been involved in distance learning for almost thirty years and understand the characteristics common to successful students in this unique educational environment. This course was prepared by CCU faculty members who are not only outstanding educators, but who have real world experience as well. They have prepared these guidelines to help you successfully complete your educational goals and to get the most from your distance learning experience. Again, we hope that you will nd this course both helpful and motivating. We send our best wishes as you work toward the completion of your degree. Sincerely,
Thomas M. Neal President
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All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system without written permission from the publisher, except for the inclusion of brief quotation in review. Copyright 2008 by California Coast University First Printing 2002
Syllabus
Course Number Course Title Catalog Description
BAM406 Business and Society This course discusses how business functions in, reacts to, and affects it social environment. Socioeconomic model, power-responsibility model, pluralistic social system model, cost-benet model, and government regulatory models will all be discussed. 3 Semester Units of Credit Upon successful completion of this course, students will be able to: Understand the strategy and environment of the market and nonmarket environment. Discuss the politics, economics, and regulations of business within the public, government, and private arena. Know the term corporate citizenship and describe the framework for corporate citizenship. Understand the role of the media, lobbyists, and special interest groups in the corporate marketplace today. Business and Its Environment 6th Edition, 2010 David P. Baron Pearson Prentice Hall ISBN-10: 0136083927 All course examinations are based on the contents of the textbook required for this course. To successfully complete the examinations, you will need the textbook. You may rent the textbook from the Library, or you may purchase the textbook from other sources. Several Internet sources are included in the Student Handbook. The Study Guide The Study Guide was designed to help you understand the material in the textbook and master the course content. Each Study Guide chapter corresponds to a chapter in the textbook.
Units of Credit Course Goals
Learning Resources
Textbook:
Supplementary Material
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Unit Examination Answer Sheets Test Item Challenge Form CCU Library Information Request For Help Form Final Examination Scheduling Form Instructional Methods
Student Resource Center To enhance your educational experience, we have developed a comprehensive Student Resource Center. The Student Resource Center is available on-line through the California Coast University student web portal called CoastConnection. At this site, you will nd an extensive array of on-line resources: from the basics of how to write a paper; tutorials on how to use the Internet; general information on a variety of subjects; along with cutting edge research in your areas of interest. Organized by general subject areas, you will nd a description for each web site, along with a web link to directly access the web sites you are interested in. Through this, we hope you will nd additional tools to assist you with your educational and professional goals. To Access the CoastConnection Learning Resource Center
Log on to http://www.Calcoast.edu Log on to Coast Connection using your student ID number (if you do not have a password, you will need to request one) Click on the heading Student Learning Resource Center.
The preceding instructions should be helpful as you complete this portion of your course. Please feel free to contact your respective academic department with additional questions. Additional Reading and On-line Resources To help you to further understand this subject material, additional reading and on-line resources related to this course, are listed in the syllabus of this course. Students wishing to access an even more comprehensive listing of on-line resources are encouraged to visit CoastConnection via the online Student Resource Center.
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Syllabus
Instructional Methods
The chapter assignments and course examinations have been designed by the faculty to provide you with a book that teaches. After completing the course, you will have thorough and complete exposure to the course material.
Your Course Grade

Your grades on course examinations are determined by the percentage of correct answers. There is no penalty for guessing. The University uses the following grading system: A B C D F = = = = = 90% 100% correct 80% 89% correct 70% 79% correct 60% 69% correct 59% and below correct
Your grade in this course will be based on the number of points you earn. Grades are based on the percentage of points you earned out of a total of 500 points: Four Unit Examinations 100 points each Final Examination 100 points 100 points total 20% of your grade 400 points total 80% of your grade
Students are required to receive a passing grade on all examinations.
Before Beginning Your Course

In order to successfully complete this course, we recommend that you do the following before beginning:
Be sure that you have the correct edition of the course textbook. Become familiar with the contents of the textbook, beginning with the Table of Contents. Authors often include supplementary material at the end of the text, such as a glossary and/or reference section, that will help you as you complete your examination.
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Many textbook publishers have developed excellent websites to accompany their textbooks. The sites address is generally printed on the introductory pages of the textbook or is sometimes found on the back cover. We recommend that you visit the website for your text if you have access to the Internet. These sites can enrich your understanding of the course material. To enhance your educational experience and help you to further understand this subject matter, we have developed a comprehensive listing of online resources related to this course. These additional resources may be found at www. Calcoast.edu under the heading: Coast Connection Student Resource Center.
Mastering the Course Content

The Study Guide contains several components selected and developed by the faculty to help you master the content of this course. Each chapter in the Study Guide corresponds to a chapter in the textbook and contains: Chapter Objectives A Chapter Overview Key Terms A Chapter Summary Self Tests The most efcient way to complete this course is to read the materials in both the Study Guide and textbook in the sequence in which it appears, generally from beginning to end. Although there are various ways to proceed through the course, successful students typically use the following approach: Read the Summaries Before reading a chapter of your textbook, review the corresponding Learning Objectives, Overview, Key Terms, and Summary sections in the Study Guide. These important summaries were prepared to give you an overview of the content to be learned. Review the Self Test After you have reviewed the Study Guide summaries, look at the items on the Self Test. As you identify your areas of relative strength and weakness, you will become more aware of the material you will need to learn in greater depth. Read and Review the Chapter
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Syllabus
Once you have the scope and organization of the chapter in mind, turn to the corresponding chapter in the text and read the material carefully. Keep the Learning Objectives and Self Test questions in mind as you read. As you read, highlight important concepts and information in your Study Guide, and write notes in the Study Guide margins. These notes will help you study for the Unit and Final Examinations. Check Your Mastery of Each Chapter When you feel that you have mastered the concepts presented in the chapter, complete the Study Guide Self Test without referring to the textbook or your notes. Correct your Self Test using the Answer Key provided in the Study Guide. Your results will help you identify any areas you need to review.
Completing the Unit Examinations

Before beginning your examination, we recommend that you thoroughly review the textbook chapters and other materials covered in the Unit, following the suggestions in the Mastering the Course Content section of the Syllabus. Each course contains four Unit Examinations and a Final Examination. Unit Examinations usually consist of 25 objective (multiple choice or true/false) test questions as well as comprehensive writing assignments selected to reect the Learning Objectives identied in each chapter. Unit Examinations may be found approximately every four to six chapters throughout your Study Guide. Unit Examinations are open-book, do not require a proctor, and are not timed. This will allow you to proceed at your own pace. It is recommended that you check your answers against the material in your textbook for accuracy. We recommend that you complete your examination by rst circling the correct answer on the Unit Examination in your Study Guide. Once you have completed your Examination, transfer your answers to the actual answer sheet that will be submitted for grading.
Writing Assignments
Syllabus
Each Unit examination includes a written component. This assignment may be in the form of written examination questions, case study problems, or other types of questions that require problem-solving solutions. The written assignment affords the student an opportunity to demonstrate a level of subject mastery beyond the objective Unit Examinations, which reects his/her ability to analyze, synthesize, evaluate and apply his/her knowledge. The comprehensive Written Examination materials are found immediately following each Unit Examination.
Written Examination Instructions
Always include your name, student number and course number and title on each page of your Written Examination (this is for your protection in case your materials become separated). Begin each Written Examination by identifying the question number you are answering followed by the actual question itself (in bold type). Use a standard essay format for response to all questions (i.e. four to ve paragraphs with three to ve sentences per paragraph, including an introduction, middle paragraphs, and conclusion). All responses must be typed double-spaced, using a standard font and 12 point type size for ease of reading and grading. All online responses must be submitted as a MS Word Document le only. Responses should be no fewer than 300 words and no more than 500 words in length. Always read your answers and proof for content, misspellings, and grammar. Carefully read and analyze each question. You might consider starting with questions you feel most comfortable answering. This will help you build condence as you develop your answers. Outline your answer as this will help you organize your thoughts and provide a framework for your essay response.
Key Point
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All work must be free of any form of plagiarism. Put written answers into your own words. Do not simply cut and paste your answers from the Internet or Wikipedia and do not copy your answers from the textbook. Plagiarism consists of taking and using the ideas, writings, or inventions of another, without giving credit to that person and presenting it as ones own. This is an offense that the University takes very seriously (see page 18 of the student handbook). An example of a correctly prepared essay response may be found by visiting the Student Web Portal via Coast Connection. Completion of the Written Examinations allows you an opportunity to demonstrate a more thorough and comprehensive understanding of the subject matter. Take your time. Be as thorough and complete as possible. It is our hope you nd these examinations to be a stimulating and challenging addition to your learning.
Challenging Examination Items

We make every effort to ensure that all examination items are fair and can be answered by reading and understanding the material in your textbooks. However, problems sometimes arise in the selection or interpretation of test items. For example, you might argue that two alternatives could be correct, based on the material you read, or that the correct answer is not among the choices. Occasionally, a typographical error might make a question difcult to answer. If you encounter a problem with a test item, you may receive credit for it by providing a brief written answer to the question, rather than a multiple choice response. Challenges to examination items may only be submitted by regular U.S. Mail. There are no provisions to allow students to submit challenges via the Internet. To receive challenge item credit, you will need to do the following:
For each test item (question) you wish to challenge, ll in the bubble in the F column on the answer sheet for that particular question. Using the Test Item Challenge Form, identify the Examination you are working on (i.e., Unit Test 1, 2, 3, 4, or the Final Examination) and the specic question number you are challenging. Write out the question, and then answer it in a few sentences.
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Syllabus
Provide a page reference from the textbook to support your answer. If you do not provide a page reference, we cannot give you credit for the answer. Staple the form, your challenges and any other work papers to your answer sheet and submit them by U.S. Mail to the Testing Department.
The information you provide is important to us. It will help us further validate and correct any possible errors in the testing materials. If you follow the Test Item Challenge procedure, your challenge will be reviewed and if correct, you will be given credit. You will receive a new grade report with any updates to the examination. You should allow an additional week for the review and scoring of your examination.
Preparing Your Answer Sheet

Unit Examinations are submitted for grading four times during the course. You may submit your examination for grading either by regular mail or electronically through the Coast Connection Student Portal. If your Unit Examination contains any challenge items, it may not be submitted electronically, you must mail them.
Submitting Unit Examinations by Mail

Send your completed Unit Examination along with any written assignments to the following mailing address: California Coast University Testing Department 700 North Main Street Santa Ana, CA 92701
Submitting Unit Examinations via the Internet
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Syllabus
Students may access the online testing features via the Coast Connection Student Portal. The objective portion of the Unit Examination may be completed and submitted online. Written Examinations or other assignments connected with that Unit may be submitted using the essay submission icon on the Student Portal. All assignments for each Unit must be submitted prior to starting on the next Unit. If you are having difculty accessing the Student Portal, contact Student Services.
Receiving Your Unit Examination Grades

After your examination is scored, your grade report will be mailed to you, or you may arrange to have your grade e-mailed to you. Besides receiving a grade report, and if you have Internet access, you may also check your grades on the Coast Connection Student Portal. Grades are normally posted and available for review within 5 business days. Most students receive their grades by regular mail within two weeks after the University receives their examinations. Examinations with test item challenges require special handling, and take additional time, typically 5 business days. If you do not receive a grade report within two weeks (or three weeks if you challenge test items), please contact the Testing Department and a duplicate grade report will be sent to you. Students from foreign countries: Allow 46 weeks to receive your grade report by mail.
About the Final Examination

The University requires that all Final Examinations except Associate and Bachelors level elective courses be completed under the supervision of a Proctor. At the time you enrolled or reinstated into your program, you were given the total number of proctored Final Examinations required for your degree program. If this course requires a proctored Final Examination, please review the following information.
Proctors
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Syllabus
The purpose of the proctored Final Examination is to verify that you are, in fact, the person who is enrolled in the course of study. It is also to verify that you are completing the Final Examination without the aid of any outside assistance. During the proctored Final Examination, you may use your Textbook and any notes you have taken during the completion of your Unit Examinations. You may not have assistance from another person. Your designated Proctor will verify your identity and that you have completed the Final Examination without any outside assistance. A Proctor can be any reputable person other than a relative, current CCU student or CCU graduate.
Scheduling a Final Examination

When it is time to take your Final Examination, please complete and submit the enclosed Final Examination Scheduling Form. On this form, indicate whether this Final Examination will be sent to you or your designated Proctor. Please submit this form at the end of Unit Test 4. Your Final Examination will then be mailed to you or to your designated Proctor, based upon your degree requirements.
Submitting Your Final Examination

After you have completed your Final Examination, you or your Proctor will submit your Final Examination directly to the University for grading. The Final Examination may be submitted by mail or electronically via the Coast Connection Student Portal. Remember, if you challenge any Final Examination items, your Proctor will need to submit the examination by U.S. mail to the following mailing address: California Coast University Testing Department 700 North Main Street Santa Ana, CA 92701
Receiving Your Final Course Grade

After your Final Examination is scored, your grade report will be mailed to you, or you may arrange to have your grade e-mailed to you. Besides receiving a grade report, and if you have Internet access, you may also check your grades on the Coast Connection Student Portal. Grades are normally posted and available for review within 5 business days.
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Syllabus
Most students receive their grades by regular mail within two weeks after the University receives their examinations. Final Examinations with Test Item Challenges require special handling, and grade reports are generally received within three weeks after the University receives the Final Examination. If you do not receive a grade report within two weeks (or three weeks if you challenge test items), please contact the Testing Department and a duplicate grade report will be sent to you. Students from foreign countries: Allow 46 weeks to receive your grade report by mail. All students must receive a passing grade in all of their courses. If you did not pass a course, a new Study Guide will be sent to you and you must repeat the course.
Your Overall Grade Point Average

In addition to receiving a passing grade for each course, all students must maintain a required Overall Grade Point Average in order to graduate. Undergraduate students need an Overall Grade Point Average of 2.0 (C) on a 4.0 scale. Graduate students need an Overall Grade Point Average of 3.0 (B) on a 4.0 scale. A = 4 grade points B = 3 grade points C = 2 grade points D = 1 grade point F = 0 grade points
Second Grade Option

If you receive a passing grade in a course and you wish to improve that grade, you may repeat a course. This is known as a Second Grade Option. The fee for this option is $250. Please contact the Testing Department regarding this option. Be sure to keep a copy of all work you submit to the University.
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If you have any questions about how to proceed through the course or regarding any California Coast University policies and procedures, the easiest way to get help is to e-mail or phone the University. You may also use one of the Request for Help forms included at the back of each Study Guide. University ofce hours are Monday through Friday from 8:30 a.m. to 4:00 p.m., Pacic Standard Time.
California Coast University

700 North Main Street, Santa Ana, California 92701 Phone: (714) 547-9625 Fax: (714) 547-5777 Test Answer Sheet Fax Line: (714) 547-1451 E-mail: help@calcoast.edu
Dont forget: You are not alone! We are here to help you achieve your dream!
M BA
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06
Syllabus
Learning Objectives The learning objectives for this course are listed below: Chapter 1 1. Analyze the nonmarket environment 2. Anticipate changes in the nonmarket environment 3. Examine the nonmarket issue life cycle
Chapter 2 1. Compare and contrast an integrated market strategy and nonmarket strategy, 2. Recognize and understand the concept of positioning 3. Analyze nonmarket issues and the formulation of nonmarket strategies.
Chapter 3 1. Assess the role of the news media in nonmarket issues 2. Recognize the importance of the news media 3. Understand the recourse options in disputes with the media
Chapter 4 1. Examine the differences between private and public politics 2. Evaluate the role of activist organizations 3. Utilize strategy and negotiation when dealing with activist organizations
Chapter 5 1. Identify the nature and causes of crises 2. Recognize the patterns of crisis development 3. Utilize a crisis management program
Chapter 6 1. Analyze nonmarket action in public politics 2. Understand the nature of political competition 3. Recognize how moral concerns can motivate nonmarket action
Chapter 7 1. Understand the importance of responsible nonmarket action 2. Differentiate between the various generic nonmarket strategies 3. Examine vote recruiting as a majority building strategy
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Chapter 8 1. Recognize the importance of lobbying as a non market strategy 2. Evaluate the effectiveness of grassroots campaigns 3. Discuss the importance of coalition building within nonmarket strategies
Chapter 9 1. Examine the antitrust statutes, which include the Sherman Act, the Clayton Act and the Federal Trade Commission Act 2. Explain how antitrust laws are enforced 3. Differentiate between the three new industrial organization approaches to antitrust thought
Chapter 10 1. Identify the four major periods of regulatory change 2. Examine regulatory commissions and agencies 3. Discuss some of the political explanations for regulation
Chapter 11 1. Analyze the Coase theorem as it relates to social efciency 2. Recognize the importance of cap and-trade systems 3. Understand the role of politics within environmental protection
Chapter 12 1. Evaluate the economic efciency rationale as it relates to bargaining and intellectual property 2. Identify the components of a contract 3. Examine product liability as a branch of the common law of torts
Chapter 13 1. Examine the economics of online markets 2. Recognize the importance of privacy as it relates to the internet 3. Discuss tax policy in regards to internet purchases
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Business and Society Table of Contents
Syllabus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unit One Chapter 1: Market and Nonmarket Environments . . . . . . . . . . . . . . . . . . Chapter 2: Integrated Strategy, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chapter 3: The News Media and Nonmarket Issues. . . . . . . . . . . . . . . . . Unit 1 Examination Instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unit 1 Examination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unit 1 Essay Examination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unit Two Chapter 4: Private Politics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chapter 5: Crisis Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chapter 6: Nonmarket Analysis for Business. . . . . . . . . . . . . . . . . . . . . Chapter 9: Nonmarket Strategies for Government Arenas . . . . . . . . . . . . Unit 2 Examination Instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unit 2 Examination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unit 2 Essay Examination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unit Three Chapter 8: Implementing Nonmarket Strategies in Governmental Arenas. . Chapter 9: Antitrust: Economics, Law, and Politics . . . . . . . . . . . . . . . . Chapter 10: Regulation: Law, Economics, and Politics. . . . . . . . . . . . . . . Unit 3 Examination Instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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1-08 09-17 18-27 28 29-33 34-35
36-44 45-52 53-61 62-70 71 72-76 77-78
79-87 88-97 98-107 108
Unit 3 Examination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109-113 Unit 3 Essay Examination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unit Four Chapter 11: Environmental Management and Sustainability. . . . . . . . . . . Chapter 12: Law and Markets. . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . Chapter 13: Information Industries and Nonmarket Issues . . . . . . . . . . . Unit 4 Examination Instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116-125 126-134 135-143 144 114-115
Unit 4 Examination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145-149 Unit 4 Essay Examination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150-151
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Business and Society Table of Contents
Final Examination Instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forms Request for Help Form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Test Item Challenge Form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Final Examination Scheduling Form . . . . . . . . . . . . . . . . . . . . . . . . . . .
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153 154-155 156-157
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Objectives
Chapter Number One

Market and Nonmarket Environments
Learning Objectives Upon successful completion of this chapter, you should be able to: 1. 2. 3. Analyze the nonmarket environment. Anticipate changes in the nonmarket environment. Examine the nonmarket issue life cycle.
Instructions to Students
Read pages 1-32 of your textbook Reference: Business and Its Environment by: David P. Baron, 6th Edition.
Overview
The nonmarket environment is characterized by the four Is: issues, interests, institutions, and information. This characterization is illustrated in some detail for the automobile industry. The emphasis of the approach maintained throughout the book is on nonmarket strategy; i.e., actions by managers to improve the performance of their rms in both their market and nonmarket environments. The chapter presents the nonmarket issue life cycle and explores the origins of nonmarket issues. The chapter also includes a case The Nonmarket Environment of Google, which illustrates the broad range of nonmarket issues with which the company must deal.
Key Terms
The key terms listed below are terms you should be familiar with. Write your denition below each item. Check your answers at the end of this chapter. Market component: Nonmarket component: Information:
Summary
The eld of business and its environment focuses on the nonmarket environment of business and its interrelationships with the market environment. This chapter presents a characterization of the pattern of development of a nonmarket issue and discusses the causes of change in the nonmarket environment and how issues are placed on the nonmarket issue agenda. The nonmarket issue life cycle in Figure 1-2 is a useful framework for thinking about where an issue presently is and how it could develop. It is important to emphasize, however, that the focus of the book is how rms and their managers can participate effectively and responsibly in inuencing the development of those issues. In discussing nonmarket issues and the nonmarket environment, it is important to emphasize the role of managers both in addressing the issues and in formulating strategies. That is, management is in the center of Figure 1-1. Specialists, such as lawyers and consultants, can be important resources, but managers ultimately must make the decisions. In part because managers are at the center of decision-making, the appropriate level of analysis is organizational; i.e., from the point of view of a rm dealing with an issue in its environment. The unit of analysis is thus the conjunction of a nonmarket issue and the rm. The roles of institutions and interest groups should also be noted, although they are not considered in detail until subsequent chapters. It would be useful to emphasize that institutions are not only formal and public, such as Congress and NHTSA, but are also private, such as arbitration mechanisms, or collections of private organizations as in the case of the news media (considered in Chapter 3). Key Terms Market component -includes those interactions between rms, suppliers, and customers that are governed by markets and contracts. Nonmarket component- is composed of the social, political, and legal arrangements that structure interactions outside of, but in conjunction with, markets and contracts. Information- refers to what interests and institutional ofceholders know about an issue, the consequences of alternative courses of action, and the preferences of those concerned with the issue.
Self Test
Multiple Choice Questions (Circle the correct answer) 1) Of the following companies, which has had to deal with public concerns on a continuing basis? a) b) c) d) Google McDonalds Nike Toyota
2) All but which one of the following makes public institutions different from markets. a) b) c) d) Due process Majority rule Bottom line concerns Collective action
3) Successful management needs which of the following? a) b) c) d) Frameworks for analyzing nonmarket issues Principles for reasoning about them Approaches for formulating strategies All are correct
4) Firms typically deal with nonmarket issues in ___________ to their potential impacts on _________. a) b) c) d) Size; success Proportion; performance Finance; human resources The market; bottom line
5) Which of the following was not an environmental pressure brought about because of the Exxon Valdez oil spill? a) b) c) d) Liability for damages Increased human resource coordination More stringent regulations Direct public pressure
Self Test
6) Which of following is not one of the four Is of the nonmarket environment: a) b) c) d) Issues Interests Information Innovation
7) In the agricultural biotechnology industry, which of the following institutions is not a major player? a) b) c) d) The Environmental Protection Agency The U. S. Department of Agriculture The Central Intelligence Agency The Congress
8) Which of the following are parts of the framework for understanding the life cycle of nonmarket issues for the automobile industry? a) b) c) d) Safety Fuel economy International trade All of the above
9) a) b) c) d)
Bills were introduced in Congress to raise the Corporate Average Fuel Economy standard by 10%. 20%. 30%. 40%.
10) The Clean Air Act authorized the EPA to grant _____ a waiver allowing it to set more stringent auto pollution standards than federal standards. a) b) c) d) California Texas New Jersey Michigan
Answer Keys
Key Term Denitions Market component: includes those interactions between rms, suppliers, and customers that are governed by markets and contracts. Nonmarket component: is composed of the social, political, and legal arrangements that structure interactions outside of, but in conjunction with, markets and contracts. Information: refers to what interests and institutional ofceholders know about an issue, the consequences of alternative courses of action, and the preferences of those concerned with the issue.
Answer Keys
Answers to Self Test 1. c 2. c 3. d 4. b 5. b 6. d 7. c 8. d 9. d 10. a
Objectives
Chapter Number Two

Integrated Strategy
Learning Objectives Upon successful completion of this chapter, you should be able to: 1. 2. 3. Compare and contrast an integrated market strategy and nonmarket strategy. Recognize and understand the concept of positioning. Analyze nonmarket issues and the formulation of nonmarket strategies.
Overview
This chapter reinforces the point made in Chapter 1 that managers are responsible for the formulation and implementation of nonmarket strategies. This chapter extends that perspective by focusing on the integration of those strategies with market strategies, as illustrated in Figure 2-1. One natural focal point for this integration is the relationship between market opportunities and the importance of nonmarket strategies, as illustrated in Figure 2-2. The inuence of private politics as illustrated in Figure 2-3 is considered in more depth in Chapter 4.
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Key Terms
The key terms listed below are terms you should be familiar with. Write your denition below each item. Check your answers at the end of this chapter. Business Strategy: Market strategy: Nonmarket strategy:
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Summary
The principal factor restricting the pursuit of market opportunities is government policies. Two other factors are public sentiment and ethics. The section on positioning provides a foundation for nonmarket strategy, but as importantly it affects the set of issues that the rm faces. Some of those issues are identied by government as considered in Part II of the book and others by the news media as considered in Chapter 3, and some are initiated by activists as considered in Chapter 4. The framework presented in Figure 2-4 provides a framework for addressing nonmarket issues. This framework will be elaborated on in the following chapters, so at this point in the development it is primarily used to identify the stages in the framework. The stages are intended both to correspond to managerial decision-making processes and to distinguish between analysis, or thinking ahead, and deciding. The latter involves choosing a strategy to deal with an issue or a developing policy to guide managers in dealing with issues. Another way of thinking about the stages is that the analysis stage is positive in the sense of prediction and explanation, whereas the choice stage is normative in two senses. The rst is that of choosing the alternative that is best in terms of the rms objectives. The second is normative in the sense of ethics principles. For example, the evaluation of claimed rights requires the application of applying ethics principles. It is important that students understand that the perspective taken to the issues addressed in the book is not that of public policy chosen by a benevolent government. Also, the perspective is not that of doing good, or what might be called private social welfare. Instead, the perspective is that of a rm and its managers attempting to further the interests of the rm. No attempt is made to dene the rms interest, but in the rst several parts of the book those interests are assumed primarily to be prots. This is tempered by normative considerations based on ethics principles. The chapter includes a discussion of a Googles integrated strategy directed at opening opportunities for its products. In 2008 Google petitioned the FCC to prevent Verizon Wireless from excluding a G-phone and other devices. Google has also pressed forward on its campaign to obtain access to the white spaces.
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Self Test
Multiple Choice Questions (Circle the correct answer) 1) What serves as a guide to a rms actions in its market and nonmarket environments? a) b) c) d) A business strategy The stock market Shareholders annual voting Employee demands
2) A market strategy consists of actions taken in the market environment to create which of the following for a rm by improving economic performance: a) b) c) d) Money Customers Value Stakeholders
3) The importance of nonmarket strategies is related to the control of a rms a) b) c) d) Threats. Plans. People. Opportunities.
4) Opportunities can be controlled by ______ at one extreme and _____ at the other extreme. a) b) c) d) Competitors, customers Customers, suppliers Government, markets Markets, buyers
5) In the United States, the regulation of telecommunications is being replaced by what? a) b) c) d) International competition Market competition Globalization of the industry Privatization
13
Self Test
6) Which of the following industries has the least government control? a) b) c) d) 7) a) b) c) d) Local communications service Biotechnology Automobile Consumer electronics What can be crucial for the success of a nonmarket strategy? Timing Marketing Consumer involvement None of the above
8) In terms of strategy and nonmarket issue life cycle, Nike found itself reacting to what rather than shaping the development of the issue? a) b) c) d) The government only Their own culture Others actions None are correct
9) Nonmarket issue life cycle and strategy ranges from what to what on the continuum of time? a) b) c) d) Issue identication; enforcement Interest group formation; enforcement Legislation; administration Issue identication; administration
10) The most effective means of integrating nonmarket strategies and market strategies is to what? a) b) c) d) Consider both strategies Consider only nonmarket strategies Consider only market strategies Consider neither but come up with new strategies
14
Answer Keys
Key Term Denitions Business Strategy: guides a rm in its market and nonmarket environments and has both market and nonmarket components. Market strategy: is a concerted pattern of actions taken in the market environment to create value by improving the economic performance of the rm. Nonmarket strategy: is a concerted pattern of actions taken in the nonmarket environment to create value by improving overall performance.
15
Answer Keys
Answers to Self Test 1. a 2. c 3. d 4. c 5. b 6. d 7. a 8. c 9. a 10. a
16
Notes
17
Objectives
Chapter Number Three

The News Media and Nonmarket Issues
Learning Objectives Upon successful completion of this chapter, you should be able to: 1. 2. 3. Assess the role of the news media in nonmarket issues. Recognize the importance of the news media. Understand the recourse options in disputes with the media.
18
Overview
This chapter considers the role of the news media in the life cycle of a nonmarket issue. It is intended to sensitize students to the types of issues the news media brings to the attention of activists, politicians, and the public and to provide a framework for understanding when the media will cover an issue and how the issue will be treated.
19
Key Terms
The key terms listed below are terms you should be familiar with. Write your denition below each item. Check your answers at the end of this chapter. Societal signicance perspective: Media Strategies:
20
Summary
The media does not create nonmarket issues, but it can accelerate their development and broaden the set of actors who take an interest in them. Media coverage can also make it more difcult for management to address the issue if the rms actions are under close and continuing scrutiny. Furthermore, as the Alar example illustrates, the news media can intentionally or inadvertently play a role in the nonmarket strategy of an interest group. Because of the importance of the news media in the nonmarket environment, managers need to understand the objectives of the news media and journalists and how to interact with them in an effective manner. From time to time, a dispute between a rm and the news media develops, and managers need to understand the possible avenues of recourse. From the perspective of nonmarket issues and their development, the objective is to be able to predict which issues involving a rm are likely to be covered by the news media, and for those that are likely to be covered, how they will be treated. As the Alar example illustrates, the media can substantially expand an issue, particularly if it is acting in its role as a protector of the right of the public to know. On some issues, the media can also act as an advocate for a particular group or for a particular resolution of an issue. The news media has a difcult job obtaining information often under considerable time pressure. A lecture could address the difculty of this task. A lecture can also emphasize the broad set of roles of the news media in society and its important role in a democracy. Predicting coverage and treatment requires a theory, and the chapter presents a theory based on two explanatory variablesintrinsic audience interest and societal signicance. The theory can be illustrated through examples from the previous chapters. On many issues, reporters seek interviews for balance, controversy, or to have both sides of an issue telling their story. In such cases, the story may already be in the can, as indicated in the following episode. John E. Swearingen, chairman of Amoco, Inc. (now part of British Petroleum), described his interview with a major television network on the issue of natural gas price regulation: That interview lasted for about an hour and forty minutes. she was working from a prepared script, hoping to goad me into giving her a few outrageous answers that would t into that script. The show, in other words, was already in the can. What is required for television is the quick, easy answer, the scene that stirs people up, the emotional hook which will cause the ratings to jump. And, I suppose, from the point of view of the television producer, there could be nothing more deadly in the vicious ratings game than a long discussion of the facts and gures of an extremely complicated economic program. This statement illustrates that television seeks short, easy to understand, and visual messages and that complexity and detail are difcult for it to handle. It also suggests that a substantial component of the business community is suspicious of the news media and views it as hostile.
The General Motors Like a Rock? (A) chapter case deal with a faked media story and a courageous, and ultimately successful, strategy of GM for managing its aftermath. The revelations of faked stories have become sufciently common that suspicions about news coverage linger. Shortly before the November 2004 election CBS News aired on 60 Minutes a segment on President Bushs National Guard record. The segment was quickly shown to be based on faked documents, and Dan Rather was forced to admit that the documents were false. An independent investigation commissioned by CBS lead to the ring of Mary Mapes, the producer of the segment, and three others. Dan Rather had earlier announced his retirement from CBS News and was spared disciplinary action. His role in the segment was widely derided, however. He was subsequently terminated by CBS.
21
Summary
As an example of the courts reducing a libel damages award, a jury had awarded $222.7 million in damages to MMAR Group Inc. as a result of an article in The Wall Street Journal. The amount exceeded Dow Jones annual prot. The judge lowered the damages to $22.7 million. (In 1999 the judge ordered the case retried because of the possibility that the plaintiff had misclassied evidence that the defendant could have used in its defense.)
22
Self Test
Multiple Choice Questions (Circle the correct answer) 1) Which of the following roles does the news media play in nonmarket issues? a) b) c) d) Identication of nonmarket issues Nonmarket actions associated with the nonmarket issues The progress of nonmarket issues through life cycles All are media roles
2) Media coverage can do all but which of the following? a) b) c) d) Alert the public to nonmarket issues Raise concerns about the policies and practices of rms Increase the costs of nonmarket actions by interests Provide information
3) The National Resources Defense Council campaign on Alar used which of the following media strategies? a) b) c) d) The use of political entrepreneurship Repetitious use of its message about Alar The hiring of a communications rm to work with the media All of the above were used
4) Because of the importance of the news media, rms and their managers must _______ which issues will attract media coverage and how the media will treat them. a) b) c) d) create control anticipate announce
5) Treatment of information takes several forms. Which of the following is not included? a) b) c) d) A straightforward presentation of facts and description of events Advocacy of a course of action An interpretation of the facts and events A biased assessment of the information
23
Self Test
6) Advocacy journalism is usually restricted to which page of the newspaper? a) b) c) d) Editorial Front Business Sunday insert
7) The Intrinsic Audience Interest Theory of news coverage is based on which of the following premise(s)? a) b) c) d) The news media organizations are owned by for non-prot rms That coverage and treatment decisions are governed by revenue considerations That coverage increases with audience interest That the explanatory power of the theory comes primarily from the supply side
8) According to the intrinsic audience interest theory, the more proximate the consequences, the ____ the audience interest. a) b) c) d) greater lesser more constant more unconnected
9) The societal signicance perspective of news media coverage is based on which of the following premise(s)? a) News media responds to its own perception of the signicance of an issue to the society b) Coverage is a function of the news media perception as judged by the news media c) Income distribution and social tensions are high on the social signicance dimension d) All the above are important premises 10) The special role that the media has in a democracy is what? a) b) c) d) The duty of not taking sides The duty of serving the peoples right to know The duty of serve the governments perceptive The duty to print what they want
24
Answer Keys
Key Term Denitions Societal signicance perspective: views coverage and treatment as a reection of the news medias perception of the signicance of an issue to society. Media Strategies: guide transactions with the media and communication with stakeholders and the public.
25
Answer Keys
Answers to Self Test 1. d 2. c 3. d 4. c 5. d 6. a 7. c 8. a 9. d 10. b
26
Notes
27
Unit 1 Examination Instructions
The Unit Examination

The Unit Examination contains 25 questions, either multiple choice or true/false as well as a writing assignment. Your grade on the examination will be determined by the percentage of correct answers. There is no penalty for guessing. The University utilizes the following grading system: A B C D F = = = = = 90% 100% correct 80% 89% correct 70% 79% correct 60% 69% correct 59% and below correct 4 3 2 1 0 grade grade grade grade grade points points points point points
Completing Unit One Examination

Before beginning your examination, we recommend that you thoroughly review the textbook chapters and other materials covered in each Unit and following the suggestions in the Mastering the Course Content section of the course Syllabus. This Unit Examination consists of objective test questions as well as a comprehensive writing assignment selected to reect the Learning Objectives identied in each chapter covered so far in your textbook. Additional detailed information on completing the examination, writing standards, how to challenge test items and how to submit your completed examination may be found in the Syllabus for this course. If you have additional questions feel free to contact Student Services at (714) 547-9625.
28
Unit 1 Examination
Multiple Choice Questions (Enter your answers on the enclosed answer sheet) 1) Which of the following represent types of interests? a) b) c) d) Advocacy groups Special interest Activist groups All of the above
2) Which of the following is not an organized interest group that directly impacts the automobile industry? a) b) c) d) United Auto Workers Trial lawyers American Association of Automobile Manufacturers Oil industry
3) Which of the following is not a primary public institution in the nonmarket environment? a) b) c) d) Legislatures The executive branch The World Court Administrative agencies
4) Which of the following is a powerful force for providing information to ofceholders regarding the likely consequences of policy alternative for their constituents and the public more broadly? a) b) c) d) 5) a) b) c) d) United Auto Workers Newspapers from advocates of some position Lobbying None is correct Which one of the following makes up the Administrative and regulatory agencies arena in which nonmarket issues for the automobile industry are addressed? Congress Environmental Protection Agency European Union All of the above
29
Unit 1 Examination
6) a) b) c) d) 7) a) b) c) d)
Which auto company was targeted by the environmental groups seeking to mobilize the public to support greater fuel economy? General Motors Daimler Chrysler Ford Toyota Which of the following is not a source of nonmarket issues? Moral concerns Institutional change Interest group activity Crash of the stock market
8) What is the following new theory called: under which rms could be held liable if their stock prices fell signicantly when the rms projections of future earnings had been favorable? a) b) d) d) Fraud on the market Fraud on the nonmarket The common factor Collective deception
9) In terms of strategy and nonmarket issue life cycle, Nike found itself reacting to what rather than shaping the development of the issue? a) b) c) d) The government only Their own culture Others actions None are correct
10) Nonmarket issue life cycle and strategy ranges from what to what on the continuum of time? a) b) c) d) Issue identication; enforcement Interest group formation; enforcement Legislation; administration Issue identication; administration
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Unit 1 Examination
11) The most effective means of integrating nonmarket strategies and market strategies is to what? a) b) c) d) Consider both strategies Consider only nonmarket strategies Consider only market strategies Consider neither but come up with new strategies
12) ______ is a foundation for market or competitive strategy because it is a source of competitive advantage. a) b) c) d) Timing Lobbying Positioning Marketing
13) Nonmarket positioning is inuenced by a rms a) b) c) d) nances. market strategy. customers. competition.
14) What was the primary concern for eBay in its positioning for a certain type of space? a) b) c) d) Market Consumer Legal Moral
15) The collection of diverse interests, viewpoints, and preferences of the individuals in society is known as what? a) b) c) d) Public individualiality Common sense Public sentiment Public wants and demands
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Unit 1 Examination
16) BP managed its environment in many ways. One way that it solidied its positioning relative to the natural environment was to what? a) b) c) d) Move away from oil production and distribution of gasoline Change its symbol and slogan Join the Green Party Appoint only environmentalists to its Board of Directors
17) Law-making and rule-making take place in what type of space? a) b) c) d) Social Legal Political Commercial
18) What space has Microsoft largely ignored, relying instead on its aggressive approach to markets? a) b) c) d) Legal Public sentiment Political Nonmarket
19) Positioning can also have its perils. Which of the following companies has been lobbied heavily to increase its commitment to its own causes? a) b) c) d) Xerox GM Microsoft Starbucks
20) Firms deploy nonmarket capabilities to do what? a) b) c) d) Add value Beat the competition Create new markets Try new strategies
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Unit 1 Examination
21) Which of the following are parts of the framework for the analysis of nonmarket issues? a) b) c) d) Screening Analysis Choice All of the above
22) The societal signicance perspective of news media coverage assumes the following roles, except: a) maintaining democracy b) the First Amendment protects the news media in assuming its role in the society c) informing citizens of unjust behavior d) protecting the government, the president and the Congress from themselves 23) Using the Audience Interest/Societal Signicance continuum, which of the following rates highest on both? a) b) c) d) Poverty Environmental protection International trade The economy
24) Which of the following makes an issue more newsworthy? a) b) c) d) The degree of urgency A celebrity being involved with an issue If the issue contains controversy or conict All are correct answers
25) According to well-known journalist Edwin Newman, What is news on television often depends on _____________? a) b) c) d) what the editor wants covered where your reporters and cameramen are what the month is what you covered last
33
Unit 1 Examination
Written Assignment for Unit One

Be sure to refer to the course syllabus for instructions on format, length, and other information on how to complete this assignment. Please answer ONE of the following: 1) Using the fours Isissues, institutions, interests and informationthat characterize the nonmarket environment, develop an analysis of the fast food industry using McDonalds as your primary focus. 2) Identify and analyze the issues, political, legal, and market explored in the case of Molecular Insight Pharmaceuticals. How well did MIP integrate the market and nonmarket components of its business strategy? 3) Discuss and critique the news media as an industry. What are the various roles played by the participants in the news industry? How does management differ from journalists in their perspectives on what constitutes the who, what, where, and why of a story? Who and what controls the media in the 21st century and why?
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You Can Do It
You have just completed Unit 1 of this course.
You are off to a great start!
Keep up the good work!
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Objectives
Chapter Number Four

Private Politics
Learning Objectives Upon successful completion of this chapter, you should be able to: 1. 2. 3. Examine the differences between private and public politics. Evaluate the role of activist organizations. Utilize strategy and negotiation when dealing with activist organizations.
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Overview
This chapter introduces the concept of private politics and distinguishes it from public politics, which is the focus of Part II of the book. The private and public politics terminology is maintained throughout the book. Private politics is typically initiated by NGOs, activist organizations, and business interests.
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Key Terms
The key terms listed below are terms you should be familiar with. Write your denition below each item. Check your answers at the end of this chapter. Public politics: Private politics:
38
Summary
The participants in private politics are viewed as strategic, in the same sense that a rm chooses market and nonmarket strategies to improve its performance. Private politics is also viewed as competition, and that competition often centers around a campaign. In addition to characterizing the NGO/activist component of the nonmarket environment and highlighting actions that take place outside of public institutions, the chapter also addresses approaches for dealing with activists and their campaigns. Activists are important for the variety of reasons indicated in the chapter and especially because they play a central role in identifying and shaping the development of nonmarket issues. Some activist groups, such as environmental interest groups, are members of informal networks of organizations that at times coordinate their actions. Activist/NGO challenges to rms are intended to obtain changes in the practices of individual rms and their industries. In response to these challenges, some rms take proactive measures by changing their practices to avoid being targeted. This may be referred to as self-regulation. Proactive self-regulation and corporate social responsibility do not mean that a rm will not be targeted, however, as Starbucks has learned. Firms that are targeted can ght a campaign or bargain with the activist to end it. When the rm changes its practices as a result of a campaign it is also exercising self-regulation, albeit forced self-regulation. An interest group is dened as a collection of individuals or organizations that benet from the nonmarket actions of the group. That is, the interest group acts on behalf of its members, typically through public politics. Activists may also be acting in their own self-interest and in the interests of their members, but they generally claim that they are acting on behalf of others as well. Some prefer to refer to themselves as advocates. The susceptibility of a company to a challenge by activists depends on a variety of factors including the seriousness of the issue and on characteristics of the company itself and its policies. Figure 4-1 can be used to assess a companys susceptibility and can be applied in the chapter cases. A generic strategy used by activists is presented in Figure 4-2 and can be used to analyze the activist strategies in these cases as well.
39
Self Test
Multiple Choice Questions (Circle the correct answer) 1) In general, which of the following statements best describes private collective action? a) It is a nonmarket action, which takes place in the shadow of public institutions b) It includes direct and indirect pressures, boycotts and attempts to affect public opinion c) It is intended to force rms to take action d) All the above are reasonable descriptions 2) Activist groups play the following roles, except: a) They alert management to issues that the management is unaware of b) They can affect the organization of interests by forming watchdog and advocacy groups c) They are often appointed to a rms board of directors d) They provide information to the public and public ofce holders 3) Boycotts are sometimes more ________than______ , but many attract considerable media and public attention. a) b) c) d) symbolic; real political; socially concerned real; political consumer-driven; symbolic
4) Firms argue what about the impact of boycotts? a) b) c) d) They have tremendous impact They do not have any signicant effect on their performance They have a fair amount of affect They have no impact whatsoever
5) Which companies are the most susceptible to boycotts? a) b) c) d) Consumer products Products with low switching costs A brand name that can be damaged All are correct
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Self Test
6) The Health Care Reform Project released a report attacking Pizza Hut and McDonalds. What was the attack about? a) Both corporations were serving what the Project considered to be food too high in fat content b) Both corporations had bad safety and health records c) Both corporations provided better health care coverage for their German and Japanese employees than for their U.S. employees d) Both corporations were out of compliance with several U. S. Department of Health Services regulations
7) What are the two basic strategies of activists? a) b) c) d) Putting direct pressure on rms and working through public institutions Putting indirect pressure on rms and direct pressure on government Putting little pressure on rms and lots of indirect pressure on government Putting pressure on rm boards of directors and working with public entities
8) Activist groups use their standing with all of the following except? a) b) c) d) Courts Legislatures Administrative organizations Boards of Directors
9) What legal tool may serve as a bargaining lever and may generate funds to support a groups activities such as in the case of the Natural Resources Defense Council? a) b) c) d) Boycotts Lawsuits Lobbying Legislation
10) An important component of a private politics campaign is selection of a a) b) c) d) Court Target Boycott Strategy
41
Answer Keys
Key Term Denitions Public politics: The competition between rms and other interests over the resolution of nonmarket issues in the context of the institutions of government. Private politics: The competition between rms and individuals, interest groups, activists, and NGOs over the resolution of issues outside of government institutions.
42
Answer Keys
Answers to Self Test 1. d 2. c 3. a 4. b 5. d 6. c 7. a 8. d 9. b 10. b
43
Notes
44
Objectives
Chapter Number Five

Crisis Management
Learning Objectives Upon successful completion of this chapter, you should be able to: 1. 2. 3. Identify the nature and causes of crises. Recognize the patterns of crisis development. Utilize a crisis management program.
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Overview
Dealing with a crisis is an altogether too common challenge for rms and their management. This chapter considers the origins and nature of crises, with a focus on those that become public knowledge either because the company makes it public or because an outside party makes it public.
46
Summary
The development of crises and the factors that resolve it are the focus. The chapter provides a framework, based on the nonmarket issue life cycle that both reminds a reader about the origins and development of crises and provides an approach to managing in an environment in which crises can occur. The framework has ve components: avoidance, preparedness, response, root cause analysis, and resolution. Avoidance is the most important, but when not all possible crises can be avoided, preparedness becomes paramount. Having a crisis management team and a crisis management plan can be crucial in dealing with a crisis in a responsible manner and in mitigating adverse consequences. If a crisis occurs, the plan should be implemented, but since the details of the crisis matter, there can be a myriad of things that are not covered by the plan. A response thus depends on the nature and details of the crisis. Effective communication can be crucial at this stage. Once a crisis has developed and an effective response has been implemented, attention should turn to root cause analysis. That analysis both helps identify problems that need to be corrected before the crisis can be resolved and lays a foundation for measures to avoid future crises. The chapter cases are intended to develop sensitivity to possible crises of managements creation and to provide opportunities to make decisions as a crisis unfolds. The Buffalo Savings Bank case focuses on readjusting home mortgage interest rates upward during difcult economic times. Its objective is to assess how likely the readjustment is to create a crisis. The Mattel case provides an opportunity to make managerial decisions as a crisis involving lead paint on toys unfolds. The case is presented in segments, or episodes, that require a sequence of decisions. The Merck and Vioxx case is organized similarly and focuses on whether the company should take Vioxx off the market as new evidence is developed on its side effects.
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Self Test
Multiple Choice Questions (Circle the correct answer) 1) _____ happen even to rms that take measures to avoid them. a) b) c) d) Strategies Successes Crises Dilemmas
2) Many rms, even those that have not experienced a crisis, have taken measures to reduce the likelihood of a crisis, formulated management preparedness plans, and developed a) b) c) d) root cause analysis. internal audit standards. crisis response plans. management succession plans.
3) Which one of the following is NOT a component of crisis management? a) b) c) d) Root cause analysis Preparedness Avoidance Succession
4) What term is dened as follows: a situation in which harm to people or property either has occurred or is imminent. a) b) c) d) Crisis Insolvency Bankruptcy Liquidation
5) Which of the following is true of a crisis? a) b) c) d) It is typically unexpected It can escalate quickly It can damage a rms operating performance All are true of a crisis
48
Self Test
6) In 1982, _____ people died from swallowing Tylenol capsules injected with cyanide. a) b) c) d) eighteen two sixteen seven
7) Which of the following is NOT a stage in crisis management? a) b) c) d) Identication Reconciliation Escalation Intervention
8) The rst stage in the life cycle of a crisis is: a) b) c) d) reconciliation escalation identication intervention
9) In what stage do some crises explode as a result of media coverage, government actions, or company actions? a) b) c) d) reconciliation identication intervention escalation
10) An important factor inuencing the development of the public phase of a crisis is: a) b) c) d) media coverage companys admittance of fault companys denial of fault the economy of the nation
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Answer Keys
Key Term Denitions Crisis: a situation in which harm to people or property either has occurred or is imminent. Intervention: involves actions by the company or government to deal with the crisis.
50
Answer Keys
Answers to Self Test 1. c 2. c 3. d 4. a 5. d 6. d 7. b 8. c 9. d 10. a
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Notes
52
Objectives
Chapter Number Six

Nonmarket Analysis for Business
Learning Objectives Upon successful completion of this chapter, you should be able to: 1. 2. 3. Analyze nonmarket action in public politics. Understand the nature of political competition. Recognize how moral concerns can motivate nonmarket action.
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Overview
This chapter develops a parsimonious approach to the analysis of political behavior. The approach combines the institutional knowledge provided in the Appendix with the analysis of interests and provides the foundations for the formulation and implementation of political strategies as considered in Chapters 7 and 8, respectively. Nonmarket action can take the form of private politics as considered in Chapter 4 or can be directed to government institutions. This chapter and the other chapters of Part II focus primarily on public politics and on legislative institutions and in particular Congress.
54
Key Terms
The key terms listed below are terms you should be familiar with. Write your denition below each item. Check your answers at the end of this chapter. Interests: Substitutes:
55
Summary
The underlying theory is that of distributive politics in which nonmarket action is motivated by the benets it can yield. The moral motivations of collective action are also briey considered and are developed in more detail in Part V of the book. Distributive consequences and moral motivations are one sidethe demand sideof the nonmarket action calculus. The supply side focuses on the cost of individual and collective action. The notion of the supply and demand of nonmarket action is more than a metaphor and, in principle, can be used to predict the amount of action generated. At a minimum, the approach is used to provide an assessment of the amount of the nonmarket action likely to be generated on an issue. This assessment can be summarized in the distributive politics spreadsheet presented in Figure 6-3. The perspective taken in the chapter is that most nonmarket issues addressed in the arenas of government institutions are contested and that the competition over those issues, along with characteristics of the institutions and the preferences of institutional ofceholders, are the principal determinants of the outcome. The nature of this competition is characterized in a highly simplied manner in Figure 6-2. This characterization is used in a number of the subsequent chapters and in several cases. The underlying framework is based on the concept of structured pluralism, which is a general perspective for assessing the political economy of nations. This perspective is applied in Chapter 14 to the political economy of Japan. The perspective is that private interests are the principal force affecting political outcomes on nonmarket issues. Public policy analysis, in contrast, provides technical information about alternatives, whereas interests provide politically-relevant information. This perspective also recognizes the pluralistic nature of interests, so interests may compete on issues. This is particularly the case on issues characterized by distributive politics. The building blocks of the framework are an interests demand for nonmarket action on an issue and the cost of taking that action. The demand depends on the aggregate and per capita consequences likely to result from an alternative and any substitutes that allow the interest to offset some of those costs. The concept of substitutes is developed in the chapter and is applied in the Tobacco Politics case. The costs of nonmarket action include the direct costs of activities and other costs such as the cost of organizing for political action. The assessment of the costs of political action includes the assessment of the likely effectiveness of that action, which depends on the numbers participating in the political action and their coverage of legislative districts. The results of the assessment of the demand and cost of nonmarket action by the affected interests can be summarized in a distributive politics spreadsheet. Two points worth emphasizing about the distributive politics spreadsheet are that it pertains to a specic alternative and that it pertains to interest groups and not institutions. The spreadsheet and the analysis that underlies it are specic to the particular nonmarket alternative in question.
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Self Test
Multiple Choice Questions (Circle the correct answer) 1) Which of the following most clearly describes what results from a pluralism of interests and the political actions taken to further those interests? a) b) c) d) Public policies Supreme Court decisions Executive vetoes Elections
2) Nonmarket action is transformed into outcomes by public institutions. These institutions include all of the following, except which? a) b) c) d) Administrative agencies Regulatory commissions International accords The Boy Scouts of America
3) Public policy reects which of the following? a) b) c) d) Nonmarket interests Institutional features Information All of the above are reected
4) On what two dimensions can interests be characterized? a) b) c) d) Moral and distributive Legal and ethical Self-interest and legal Redistributive and deconstructionist
5) Most issues have distributive consequences as measured by all of the following except which? a) b) c) d) Benets and costs Surpluses and rents Leases and rents Prots and losses
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Self Test
6) Which of the following characteristics describes interest groups? a) They may organize around a single issue b) They may be organized by a political entrepreneur c) They may be successful in having the executive branch of the government establish an institution that can serve their interests d) All the above are valid characteristics 7) Aligned interests such as in the environmental area allow for specialization. For example, the Wilderness Society emphasizes: a) b) c) d) a broad environmental and political agenda open lands toxic waste issues litigation
8) What is Greenpeaces approach to drawing attention to environmental issues? a) b) c) d) peaceful assembly confrontational letter campaigns exclusive lobbying
9) Which of the following is not an institution established by the executive branch of the federal government to serve an interest group? a) b) c) d) the First Reformed Church of America the Export-Import Bank the Small Business Administration the Department of Agriculture
10) The demand for nonmarket action originates from the anticipated effects of that action on the consequences of a political alternative. For rms, which of the following are relevant? a) b) c) d) prices, qualities, and availability of goods and services jobs and wages sales, prots, and market value none of the above is relevant
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Answer Keys
Key Term Denitions Interests: has a dual use in nonmarket analysis and strategy formulation. One refers to those individuals, rms, and organizations with a stake in an issue. The other refers to the magnitudes of their stakes. Substitutes: when the benets from nonmarket action can be obtained through other means.
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Answer Keys
Answers to Self Test 1. a 2. d 3. d 4. a 5. c 6. d 7. b 8. b 9. a 10. c
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Notes
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Objectives
Chapter Number Seven

Nonmarket Strategies for Government Arenas
Learning Objectives Upon successful completion of this chapter, you should be able to: 1. 2. 3. Understand the importance of responsible nonmarket action. Differentiate between the various generic nonmarket strategies. Examine vote recruiting as a majority building strategy.
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Overview
This chapter focuses on the formulation of strategies for participating effectively and responsibly in the politics of nonmarket issues. The focus is on legislative issues, but the framework and approach are applicable more generally.
63
Key Terms
The key terms listed below are terms you should be familiar with. Write your denition below each item. Check your answers at the end of this chapter. Lobbying: involves the strategic provisioning of two types of information technical and political. Agenda-setting strategies: focus rst on recruiting the agenda setter and then on building support for the alternative on the agenda. Vote recruitment: votes are recruited by interest groups and by public ofceholders.
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Summary
At about this point in the book, you may begin to wonder whether political action by rms is a good thing. Three basic responses can be given. The rst is that rms and their managers do it, so it is worth studying how they do it. Second, nonmarket action by rms is legal and constitutionally protected. Third, the appropriate limits within the realm of legal activities is in the domain of ethics. The second section of Chapter 7 raises these issues and provides a partial response. The chapter is primarily concerned with formulating nonmarket strategies and illustrating nonmarket strategy formulation through examples. The discussion of strategy formulation is general and builds on the treatments of institutional characteristics and nonmarket analysis from the two previous chapters. The perspective taken is that strategy formulation is the responsibility of managers and not of consultants or advisors, although they can provide important inputs to the process and can assist in implementation. A lecture could emphasize this point and focus on the components of strategy formulation as illustrated by the examples presented in the chapter. The links to nonmarket analysis and institutional knowledge should be emphasized to make it clear that the material in Part II is an integrated whole rather than a collection of independent components. One aspect of the nonmarket strategy formulation process that might be emphasized is the importance of developing nonmarket assets such as the rent chain. The concept of a rent chain is important as a foundation for nonmarket strategies and should be emphasized in a lecture. The rent chain can be important in the implementation of the three basic types of political strategies: representational, majority building, and informational. The basic strategies can be used alone or can be combined. Majority building strategies involve vote recruitment and agenda setting. The concept of pivotal voters is important and is well-illustrated by the Federal Express (A) case. Informational strategies are implemented by lobbying and public advocacy as considered in Chapter 8. These strategies are illustrated by the China and Most Favored Nation Status example. Informational strategies are often a component of a broader strategy encompassing representation and majority building for issues considered in legislatures. For issues considered in regulatory and administrative institutions, informational strategies are often the centerpiece, although as indicated in Chapter 10 representational and majority-building strategies are frequently used to pressure regulatory agencies through the legislature.
65
Self Test
Multiple Choice Questions (Circle the correct answer) 1) Strategy formulation and its implementation in nonmarket environments differs from strategies that are formulated and implemented in a market environment. Which of the following is one of these differences? a) Nonmarket issues attract the same participants as those involved in the markets b) The logic of collective and political action is the same c) Several of the important components of political strategies are implemented in public view that can constrain the actions of the rm d) Issues are resolved by voluntary agreements 2) Nonmarket activities of business have been criticized on a number of grounds. These include which of the following? a) Due to the for-prot goals of rms, business supports political alternatives that are contrary to public interest b) In reality, business does not have too much power c) Business does not manipulate the political process d) Business goals are always congruent with public interests 3) From the pluralist point of view, a policy to ban smoking cigarettes or imposing high taxes on tobacco products should include considering the following interests, except which? a) b) c) d) The interests of smokers and their families Cigarettes companies and their employees Farmers who grow tobacco on marginal lands The effect on the ozone level
4) Firms have been granted rights to participate in political processes irrespective of which of the following? a) b) c) d) The interests they represent When they incorporated The number of shareholders Their type of product
5) Which amendment protects the right of the corporation to make expenditures and participate in the political competition on a state ballot proposition? a) b) c) d) First Second Tenth Sixteenth
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Self Test
6) The Supreme Court ruled that collective corporate action, such as joint lobbying for a political purpose: a) Violates antitrust laws b) Does not violate antitrust laws c) The rst Amendment of the Constitution of the USA does not extend to corporations d) Firms do not have the right to participate in coalitions 7) In Austin v. Michigan Chamber of Commerce (1990), the Supreme Court did what concerning corporations making independent expenditures on behalf of a candidate? a) b) c) d) Upheld their right to do so Denied them the right to make independent contributions Sent the case back to the Michigan Supreme Court None is correct
8) _______ can take two basic forms: one involves misrepresentation and the other involves exploiting institutional features. a) b) c) d) Cheating Lobbying Manipulation Abusing
9) Which of the following industry cases represented the concern that business political activity goes beyond interests and power and centers on manipulation? a) b) c) d) The dairy industry The fast food industry The pharmaceutical industry The fashion industry
10) Nonmarket analysis involves the following activities, except which of the following? a) b) c) d) Identifying the interests affected by an issue Analyzing the demand for and the supply of political action Identifying the institutional arenas in which the issue will be addressed Analyzing the nancial statements of the rm
67
Answer Keys
Key Term Denitions Lobbying: involves the strategic provisioning of two types of information technical and political. Agenda-setting strategies: focus rst on recruiting the agenda setter and then on building support for the alternative on the agenda. Vote recruitment: votes are recruited by interest groups and by public ofceholders.
68
Answer Keys
Answers to Self Test 1. c 2. a 3. d 4. a 5. a 6. b 7. b 8. c 9. c 10. d
69
Notes
70

Completing Unit Two Examination

71
Unit 2 Examination
Multiple Choice Questions (Enter your answers on the enclosed answer sheet) 1) In terms of an activists generic strategy, what is a low-cost method of getting information out to the public that they want to be distributed? a) b) c) d) Use the news media Use television spots Use nationwide lobbying of legislatures Go with a lawsuit
2) Which of the following is not one of Greenpeaces campaigns? a) b) c) d) Ancient rain forests Climate Toxics River dumping in the Amazon
3) In terms of addressing the activist environment, which of the following is the guide line for engaging in a ght? a) b) c) d) Fight all out Win at any cost Fight when you are right and can winbut be careful Fighting never gains an advantage
4) When confronted with a private nonmarket action, a natural reaction is to be _______, but a better response is to _______the claims and demands the activists make. a) b) c) d) Defensive; deny Defensive; evaluate Welcoming; accept Offensive; reject
5) What was Environmental Defenses (ED) concern about McDonalds? a) b) c) d) Sourcing supplies from old growth forests Practice of harvesting old timber Practice of solid waste disposal All of the above
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Unit 2 Examination
6) All of the following were the threats against OnBank except? a) b) c) d) Direct action against the bank Required regulatory approval The reporting of lending data by census track Bringing in a union
7) Why was Royal Dutch/Shell such a formidable company for Greenpeace to take on? a) b) c) d) It is well-regarded in the British Isles and it has a history of ghting all comers It is the largest corporation in Europe and the third largest in the world It is the third largest corporation in Europe and the sixth in world It is regarded as the best oil company in the world and consumers back it in all issues
8) What was one of Greenpeaces principal strategies used against Royal Dutch/Shell? a) Attracting public attention through high prole, confrontational actions that were covered by Greenpeace photographers and lm crews b) A lawsuit led in Wales c) Using passive techniques to encourage a boycott of the company d) A sit-down strike of all of its gas stations
9) ______ media coverage can be expected when the issue at the core of the crisis is viewed as important to society and when the potential audience is large. a) b) c) d) Lesser Greater Biased Unbiased
10) __________ involves actions by the company or government to deal with the crisis. a) b) c) d) Reconciliation Settlement Intervention Postponement
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Unit 2 Examination
11) Resolution involves turning the crisis into a manageable ________ issue. a) b) c) d) operating tactical strategic nonmarket
12) Which of the following is NOT a component of crisis management? a) b) c) d) Response Avoidance Root cause analysis All are components
13) Which is the most important component of a crisis management program? a) b) c) d) Preparedness Resolution Avoidance Reconciliation
14) The second most important component of a crisis management program is a) b) c) d) auditing preparedness root cause analysis budgeting
15) One aspect of an avoidance strategy is a) b) c) d) budgeting auditing strategizing confronting
16) Which step of a crisis management program deals with identifying the cause of the crisis? a) b) c) d) Root cause analysis Pareto analysis Avoidance analysis Confrontation analysis
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Unit 2 Examination
17) On some issues, the benets from nonmarket action can be obtained through other means, referred to as: a) b) c) d) complements substitutes benets legalistic
18) In the case of the unitary tax and the location of foreign rms, which of the following represents the concept presented? a) b) c) d) Substitutes The unfairness of taxing foreign companies located in the United States The benets of taxation to foreign businesses The no-way-out policy
19) When the benets from supporting a political alternative are concentrated and the benets from opposing it are widely distributed, the supporters would have: a) b) c) d) stronger incentive to take political action than the opponents weaker incentive to take political action than the opponents it is better for them not to take any action none of the above actions is advisable
20) When the benets from supporting a political alternative are widely distributed but the benets for opposing it are concentrated, the opponents would have: a) no incentive to undertake political action against it while its supporters have little incentive to work for its adoption b) strong incentive to undertake political action against it c) a weaker incentive to undertake political action against it d) any one of the above actions is reasonable to win 21) Proposition 13, the public referendum in California, is an example of what at work? a) b) c) d) Political entrepreneurship Congressional redistricting Federal mandates Failed public policy
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Unit 2 Examination
22) Nonmarket assets include which of the following? a) b) c) d) Reputation of rm Reputation of top management Personal relationships with institutional ofceholders All are assets
23) The value chain includes all but which one of the following? a) b) c) d) Inbound logistics Marketing & sales Suppliers Operations
24) Analogous to the _____ chain for market strategies is the ____ chain for nonmarket strategies? a) b) c) d) rent; value prot; nonprot nonprot; prot value; rent
25) Each of the following is seen as an asset to a rm except: a) b) c) d) the rms reputation the rms access to institutional actors the experience of the rm the stakeholders views of the rm
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Unit 2 Examination
Written Assignment for Unit Two

Be sure to refer to this course syllabus for instructions on format, length, and other information on how to complete this assignment. Please answer ONE of the following: 1) Activist groups may have damaging effects on an industry and on consumers of services. Explain and give relevant examples of their motivation, strategies and membership. Be specic in your analysis.
2) What are the similarities and differences in the way Johnson & Johnson dealt with the Tylenol crisis and Exxon with the Exxon Valdez crisis?
3) Explain the sources for the demand for nonmarket action. Use examples to show the benets derived from nonmarket action activities.
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You Can Do It
With Unit 2 complete, you are half way through the course.
Take a break and reward yourself
for a job well done!
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Objectives
Chapter Number Eight

Implementing Nonmarket Strategies in Governmental Arenas
Learning Objectives Upon successful completion of this chapter, you should be able to: 1. 2. 3. Recognize the importance of lobbying as a non market strategy. Evaluate the effectiveness of grassroots campaigns. Discuss the importance of coalition building within nonmarket strategies.
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Overview
This chapter addresses the implementation of nonmarket strategies, focusing on the types of activities rms use. Lobbying is the most important activity in informational strategies, and the text addresses its nature, what makes it effective, what enables it, and the regulation of lobbying.
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Key Terms
The key terms listed below are terms you should be familiar with. Write your denition below each item. Check your answers at the end of this chapter. Lobbying: Technical information: Political information: Mobilization:
81
Summary
Whereas lobbying in an informational or representational strategy is typically done behind the scenes, grassroots campaigns are highly visible and orchestrated efforts to provide information but more importantly to apply pressure on government ofcials. How effective these campaigns are is unclear, but what is clear is that rms have increased their use of grassroots campaigns in recent years. Grassroots strategies are most effective when they are tied to the constituency connection. Coalition building is an important part of many representational strategies and is intended to leverage the political action of a rm. Coalition formation is a component of the chapter case Internet Taxation. The Internet taxation issue is complex, and the politics are distributive and can be analyzed using the conceptual material in Part II of the book. From a public policy perspective taxes should be levied on electronic commerce and on mail order salesprovided the costs of administering them are not too large. The companies that would be taxed obviously emphasize those very real costs, and the proponents of taxing e-commerce must nd a means to reduce those costs. The states are working on this, but the task is complex. The politics of Internet taxation are likely to continue for some time. The treatment of electoral strategies highlights aspects of the debate on the importance of campaign contributions, not from the perspective of candidates in elections but from the perspective of the contributor. This is a topic that may be of more interest to students than to rms, so information is provided about the market for contributions and the laws governing those contributions. The text attempts to dispel some popular myths about campaign contributions. Communications and public advocacy strategies can be useful in representational strategies, but the most important communication in informational strategies probably takes place in the context of lobbying. From time to time a rm may have to resort to the courts to deal with an issue, but judicial strategies can be both costly and time consuming and the outcome uncertain. The framing of an issue may be important to the extent that the issue can be strategically characterized. For example, in response to the abuse by tax-exempt entities of the leasing provisions of the Economic Recovery Tax Act of 1981 discussed in Chapter 6, Representative J.J. Pickle (D-TX) and his staff coined the slogan, Those who dont pay taxes shouldnt get tax breaks. With the coining of this slogan, the tax benets to U.S. exporters that used leasing for their exports were imperiled.
82
Self Test
Multiple Choice Questions (Circle the correct answer) 1) Which of the following are strategy implementation strategies? a) b) c) d) Lobbying Grassroots and constituency Coalition building All are correct
2) Which of the following is not a legitimate route of access to regulatory and administrative agencies? a) b) c) d) Campaign contributions Constituency connection Bribery Personal relationships
3) Where does lobbying traditionally take place? a) b) c) d) In committee Behind the scenes In the press In full chamber
4) According to the Center for Responsive Politics, which of the following spent the most in business lobbying expenses in 2007? a) b) c) d) Transportation Health Finance, insurance, and real estate Communications/electronics
5) All of the following are principles of effective lobbying except: a) b) c) d) Know the ofceholders interests. Explore opportunities to build coalitions. Time lobbying to the phases of the rms budget. Make straightforward presentations.
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Self Test
6) What happened in Congress in the early 1970s gave additional powers to subcommittees? a) b) c) d) Centralization of the structure Decentralization of the structure More members were added to all committees Members were given less power
7) Congressional ______ in the early 1970s gave additional autonomy to subcommittees and thereby increased the number of inuential positions substantially. a) b) c) d) democratization centralization decentralization apportionment
8) When legislation is being drafted or rewritten, lobbying often centers on which of the following? a) b) c) d) Committee staff Executive branch Clerk of the House Members
9) In 1995, the Lobbying Disclosure Act required lobbyists to do what? a) Register their activities b) Report the amount of income they receive as well as their expenditures c) Report the earnings of the corporations they represent as a percentage of their lobbying budget d) Register all of their grassroots members 10) Which of the following is the least expensive of the grassroots activities? a) b) c) d) Organizing people Letter writing campaigns Actual trips to Washington to lobby All of these are equally expensive
84
Answer Keys
Key Term Denitions Lobbying: is the strategic communication of politically relevant information to government ofceholders. Technical information: consists of data and predictions about the consequences of alternative policies. Political information: pertains to the impact of an alternative on the constituents or policy interests of an ofceholder. Mobilization: involves providing information to stakeholders on the signicance of an issue and helping to reduce their costs of participation.
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Answer Keys
Answers to Self Test 1. d 2. c 3. b 4. b 5. c 6. b 7. c 8. a 9. b 10. b
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Notes
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Objectives
Chapter Number Nine

Antitrust: Economics, Law, and Politics
Learning Objectives Upon successful completion of this chapter, you should be able to: 1. 2. 3. Examine the antitrust statutes, which include the Sherman Act, the Clayton Act and the Federal Trade Commission Act. Explain how antitrust laws are enforced. Differentiate between the three new industrial organization approaches to antitrust thought.
88
Overview
This chapter addresses elements of antitrust law, its enforcement, and some underlying economics concepts. Antitrust is a broad and deep subject to which entire courses are devoted. Instead of trying to condense this subject, the chapter focuses on four aspects of it.
89
Key Terms
The key terms listed below are terms you should be familiar with. Write your denition below each item. Check your answers at the end of this chapter. Horizontal practice: Vertical practices:
90
Summary
Antitrust can be broken down into four parts. The rst is the law and its enforcement. The second is schools of thought about the role of antitrust and its application. The third is elements of the economics of antitrust, and the fourth is the politics of antitrust. The three schools of thought are the traditional or structural school, the Chicago school, and the new industrial organization (IO) approach. One point that can be emphasized is that the vast majority of antitrust cases are private (do not involve the government as a plaintiff). These cases are typically led by a rm against one of its competitors or by a distributor or supplier against a rm. These suits are encouraged by the opportunity to collect treble damages. Some legal scholars believe that treble damages generate lawsuits that have the effect of discouraging competition. As an example of a vertical practices case, the attorneys general of 44 states led an antitrust lawsuit against Toys R Us alleging that it conspired with Mattel and Little Tikes to limit the quantities of popular toys distributed to warehouse and price clubs. Toys R Us agreed to donate $27 million toys and $13.5 million in cash to be used for toys and educational materials for children in all 50 states. The chapter case The Staples-Ofce Depot Merger? deals with an important horizontal merger case in which the government effectively used price data and internal company records to dene the relevant market and identify the likely effect of a merger on prices. The availability of bar code data is likely in the future to play a role in horizontal mergers of retailers. The chapter case The Microsoft Antitrust Case is an important case for the software, Internet, and e-commerce industries. The case identies the reasoning of the court about the conduct of a dominant company in an industry in which there are network externalities. This case has nally been resolved as the last complaints by the states have been resolved. The case includes the decision up to the balking by the states. Antitrust law continues to evolve through court decisions even when no new legislation is enacted. The following describes a Supreme Court decision pertaining to the right to sue under the antitrust laws and to the illegality of certain price xing practices. In 1982, ARCO adopted a new pricing policy in which it eliminated its credit cards and lowered the prices it charges its retailers for gasoline. USA Petroleum, which competed with ARCO in California, Nevada, and Washington, claimed that ARCOs new policy caused it to lose $800,000 a month. USA Petroleum led an antitrust suit alleging that ARCO conspired with its dealers to x prices at a low level. The courts have ruled that price xing is a per se violation of Section 1 of the Sherman Act, and USA Petroleum sought to sue under Section 4 of the Clayton Act which allows private suits in the case of violations of the antitrust laws. The chapter case Price Fixing in the Airways considers price xing on fuel surcharges for freight transport. A federal district court in California rejected USA Petroleums right to sue under the Clayton Act, holding that a suit could be brought only if the prices were predatory. A federal Court of Appeals panel overturned that decision and held that USA Petroleum could sue since price-xing of any kind distorts in a basic way the competitive process the antitrust laws were meant to protect. The Supreme Court, however, in May 1990 overturned the Court of Appeals in ruling that USA Petroleum did not have standing to sue on the basis that a price-xing conspiracy was a per se violation of the Sherman Act. Writing for the 7-2 majority, Justice Brennan said, The antitrust
91
Summary
injury requirement cannot be met by broad allegations of harm to the market as an abstract entity. Low prices benet consumers regardless of how those prices are set, and so long as they are above predatory levels, they do not threaten competition. Hence, they cannot give rise to antitrust injury.
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Self Test
Multiple Choice Questions (Circle the correct answer) 1) The antitrust acts were the result of political pressures by whom? a) b) c) d) The Populist movement Farmers concerned about the railroads pricing practices The distribution of power between farmers and railroads All of the above were political pressures to enact antitrust laws
2) Antitrust laws are concerned with the following, except: a) b) c) d) Structure of the markets. Foreign policy. Conduct of market participants. Performance of the markets.
3) Antitrust policy had its origins in the___________ movement of the 1870s. a) b) c) d) Democratic Whig Populist No Nothings
4) Which of the following is not an example of a law pertaining to antitrust acts? a) b) c) d) Robinson-Patman Act The Federal Trade Commission Act The Wagner Price Fixing Act The Clayton Act
5) What percentage of suits led under the federal antitrust laws do private litigants bring? a) b) c) d) 10 34 67 Over 90
6) Section 1 of the Sherman Antitrust Act pertains to which of the following? a) b) c) d) Unilateral monopoly conduct Unreasonable restraints of trade with a focus on joint conduct Unfair pricing standards Market domination in advertising
93
Self Test
7) The Robinson-Patman Act was intended to achieve which of the following goal(s)? a) b) c) d) Protect farmers from unfair competition from railroads Make price xing illegal Prohibit deceptive acts and practices Protect small businesses and merchants from their larger competitors such as supermarkets
8) Which of the following are not vertical practices? a) b) c) d) Boycotts Tying Price discrimination Exclusive dealing
9) The Department of Justice can enforce antitrust laws only through which means? a) b) c) d) Lawsuits led in federal court Lawsuits led in state court Lawsuits led in even years Lawsuits that have legitimate standing
10) Which of the following must conrm members of the FTC? a) b) c) d) House of Representatives Senate Both a and b Neither a nor b
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Answer Keys
Key Term Denitions Horizontal practice: is one that involves activities in the same industry Vertical practices: are those involving rms in a supply arrangement or a channel of distribution.
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Answer Keys
Answers to Self Test 1. d 2. b 3. c 4. c 5. d 6. b 7. d 8. c 9. a 10. b
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Notes
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Objectives
Chapter Number Ten

Regulation: Law, Economics, and Politics
Learning Objectives Upon successful completion of this chapter, you should be able to: 1. 2. 3. Identify the four major periods of regulatory change. Examine regulatory commissions and agencies. Discuss some of the political explanations for regulation.
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Overview
This chapter introduces the general framework of government regulation including its legal foundations, its economic rationales, and its politics. Chapter 11 is devoted to environmental protection and regulation.
99
Key Terms
The key terms listed below are terms you should be familiar with. Write your denition below each item. Check your answers at the end of this chapter. Theory of market imperfections: Political theory: Natural monopoly:
100
Summary
The period beginning in the late 1960s has been characterized by two seemingly contradictory movements. One was deregulation in a number of industries, and the other was the explosion of social regulation focusing on safety, health, and the environment. These two movements are not really contradictory and stem from new thinking and changing political forces. Deregulation resulted from concerns about industry efciency and reected an inability of industries to mount sufcient political power to block the deregulation. (It should be emphasized that the rms and labor unions in the regulated industries opposed deregulation primarily because of the threat increased competition posed to their rents.) The courts also played an important role in certain industries such as telecommunications as the regulators had blocked entry and the courts ruled that entry could not be blocked under the statutes. The social regulation movement resulted from new concerns about the environment and the role of government in protecting the health and safety of individuals, from the evolving preferences of the public, and from activists strategies. Administrative law is perhaps less interesting but is also quite important. One must note due process requirements and their inuence on the way regulations are promulgated, particularly the effect of due process requirements on the speed with which regulatory agencies make decisions. Perhaps the principal explanation for the difference in regulation in the United States and Europe is that European countries do not have due process requirements, and hence many regulatory decisions are made in the administrative agencies (ministries) and largely out of the sight of the public. Two important regulatory issues are likely to be addressed at the beginning of the century. The rst is whether Congress will restrict regulation by passing legislation to limit regulatory taking without compensation. Similarly, the Supreme Court could conclude that the Constitution requires compensation for the loss of value due to regulation. It has taken some moderate steps in this direction. Voters in Oregon approved a ballot initiative that requires compensation for regulatory takings. The second is whether the courts will limit the delegation to agencies without specic policy guides by Congress. The Court of Appeals decision mentioned in the chapter has raised this issue. By 2008 little had happened on this issue other than at the state level, where some states adopted measures similar in spirit to but weaker than that adopted in Oregon. Regulatory commissions and agencies have one of the two different structures as described in the text, but both are subject to a set of political and legal inuences illustrated in Figure 10-2. It is useful to point out that independent commissions are considerably more independent of the presidency than are the single administrator agencies. The Congress has a substantial inuence on all regulatory agencies. Echelon and the Home Automation Standard (A) case and the discussion in the manual illustrate the nature of the environment of a regulatory agency. The explanations for regulation and the forms it takes are of two types. The political economy perspective focuses on the demand for and the opposition to regulation. The politics of regulation are largely distributive and can be analyzed and understood through the framework developed in Part II of the book. The second explanation is found in market imperfections that, in the absence of regulation, can result in economic inefciency. It should be stressed that although regulation, in principle, can improve economic efciency, government is itself characterized by imperfections. Coupled with political pressures that can distort policy away from efciency, regulation can make performance worse than it would have been in the absence of regulation. This is one explanation for the deregulation movement.
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Summary
The literature on market imperfections and the appropriate response to them is extensive and provides material for a lecture that goes into more detail than could be provided in the text. Externalities provide the economic efciency rationale for market-like regulatory mechanisms for environmental protection as considered in Chapter 11. Deregulation is continuing in a number of industries such as telecommunications, electric power, and natural gas, and current developments can serve as the basis for a lecture. The success of the FCC auctions of the radio spectrum indicates that regulators are turning to decentralized, efciency-generating mechanisms.
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Self Test
Multiple Choice Questions (Circle the correct answer) 1) Regulation is government intervention in economic activity using all but which of the following? a) b) c) d) Commands Controls Incentives Market manipulation
2) Which of the following statements is applicable to regulation? a) b) c) d) Is not implemented through judicial institutions Is not implemented through independent commissions Cannot be appealed to courts They take place through condential hearings
3) The courts have a central role to play in regulatory matters. They become involved in all of these except: a) b) c) d) Interpreting regulations Due process requirement Determining constitutionality Introducing regulatory legislation
4) How many major periods of regulatory change has the United States experienced? a) b) c) d) Two Four Six Eight
5) The major focus of the second phase of regulation in the progressive era and the New Deal was? a) b) c) d) Labor and economic regulation Deregulation Social regulation Political regulation
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Self Test
6) Which of the following statements depicts the evolution of regulation in the past three decades? a) Social regulation continued progressively; the movement toward deregulation of important industries picked up speed b) Many new regulatory agencies have been created c) Authority of the existing social regulatory agencies has diminished d) Economic regulation relies more on the markets and competition 7) In which of the following cases did the Supreme Court rule: What a company is entitled to ask is a fair return upon the value of that which it employs for the public convenience? a) b) c) d) Munn v. Illinois Smith v. Ames McDonald v. FTC Mayberry v. Madison
8) The following are all examples of federal regulatory agencies and commissions except: a) b) c) d) National Labor Relations Board Environmental Protection Agency The Federal Reserve System The Senate Foreign Relations Committee
9) Which Act provides for the public notice and comment on rule making prior to rules being promulgated? a) b) c) d) The Administrative Procedures Act of 1946 The Public Hearing Act of 1964 The Common Sense Act of 1988 The Rules and Policies Act of 1935
10) There are many ways through which the President inuences the regulatory process. These include: a) b) c) d) Appointment of the agencies administrators Directing the review of regulations Policy expertise of cabinet agencies The President can use all these measures to inuence the regulatory process and outcomes
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Answer Keys
Key Term Denitions Theory of market imperfections: predicts that regulation will be instituted to correct market imperfections. Political theory: predicts that interest groups seek regulation to serve their interests. Natural monopoly: results when costs are decreasing in the scale of output or in the scope of the set of goods a rm produces.
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Answer Keys
Answers to Self Test 1. d 2. a 3. d 4. b 5. a 6. a 7. b 8. d 9. a 10. d
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Notes
107

Completing Unit Three Examination

108
Unit 3 Examination
Multiple Choice Questions (Enter your answers on the enclosed answer sheet) 1) Business grassroots strategy is built on corporate stakeholders as identied by what? a) b) c) d) Rent chain Money Partisan politics Median voters
2) The principal vehicle for creating a majority coalition is from: a) b) c) d) Collection of minorities Large rms Those without power Anyone willing to join
3) Business coalitions are made up of three types except which of the following? a) b) c) d) Peak organizations Industry organizations Ad hoc coalitions stakeholder groups
4) Which of the following peak associations focuses on the concerns of small business? a) b) c) d) Small Businesses Inc. Association of Small Business Concerns Entrepreneurs and Small Business Organization National Federation of Independent Business.
5) Trade associations serve a variety of _____ and ______ functions. a) b) c) d) market, corporate market, nonmarket corporate, nonmarket corporate, stakeholder
6) In Buckley v. Valeo (1976), the Supreme Court ruled what concerning limits on campaign expenditures? a) b) c) d) There are denite dollar limits Any limit threatens the freedoms of speech and association A limit of $100 million A partial limit is ne to preserve the First Amendment
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Unit 3 Examination
7) Campaign contributions are made for all but which of the following reasons? a) b) c) d) Inuence legislative voting Obtain access to present or future ofceholders Affect outcome of elections Help a CEO with his/her political future
8) In which of the following venues do managers testify? a) b) c) d) Regulatory agencies Congressional committees Courts All are correct
9) The Hart-Scott-Rodino Antitrust Improvement Act of 1976 requires premerger notications to the ___ and the ___ of plans to merge. a) b) c) d) DOJ; FTC DOJ; FBI FTC; FCC There is no such provision in the law
10) In 2000, what was the number of possible mergers reported under the provisions of the Hart-Scott-Rodino Act? a) b) c) d) None because rms do not need to report such information to the government 1,547 2,389 4,926
11) Private antitrust suits appear to be going in which of the following directions? a) b) c) d) Increasing substantially Decreasing substantially Doubling in numbers year to year Almost disappearing
12) The Clayton Act has a provision for ____ damages and this provides a _____ incentive to le suits. a) b) c) d) quadruple; strong treble; strong seven times; strong only twice; weak
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Unit 3 Examination
13) If acts are said to be per se illegal, one defense allowed is the defendant did not commit the act and the second is what? a) b) c) d) Defendant is irrational Defendant is unethical Prosecution is out to get the defendant The defendant committed the act, but it was not unreasonable to do so
14) Which of the following characteristics is not part of the Structural school of thought regarding the purpose of antitrust policy? a) b) c) d) International and global Government is to protect society from economic power Competition is the best protector of consumers and economic efciency Market is fragile and prone to failure
15) Under the structural or traditional approach, it believed that in concentrated industries collusion is _____________. a) b) c) d) unlikely given likely very rare
16) Which of the following statements is a characteristic of the Chicago school of thought pertaining to antitrust laws? a) Social and political as well as economic objectives b) Markets are resilient enough that market imperfections can be addressed through incentives c) Government is to protect society from economic power d) Market power derives from both horizontal and vertical arrangements 17) The Congress exerts great inuence on the regulatory agencies through which of the following means? a) b) c) d) Using its budgetary and oversight authorities Appointing the regulatory agencies administrators Using the Ofce of Management and Budget (OMB) Using the independent commissions
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Unit 3 Examination
18) Which of the following is a cause of market imperfection? a) b) c) d) Pure competition Asymmetric information Government has no intervention in the economy Complete free trade
19) In the case of a natural monopoly, economic theory recommends that government set the price of goods and services to be: a) b) c) d) Equal to total cost of production Equal to average cost of production Equal to marginal cost of production Equal to the competitors price
20) Which one of the following activities could be considered a nonpecuniary externality? a) b) c) d) Effect of a rms new plant on the demand and price of labor The increase in the oil price after the oil shock of the 1970s Generating pollution by driving a car All the above have nonpecuniary externalities
21) Which of the following is not a public good? a) b) c) d) National defense Radio broadcasting Bridges and roads Buying a TV set from the armys surplus store
22) What term below refers to behavior induced when people do not bear full consequences for their actions? a) b) c) d) Moral hazard Transaction costs Asymmetric information Free entry and exit into the market
23) What theory predicts that regulation initially will be found where there are market imperfections and over time will evolve to serve the interests of the regulated industry? a) b) c) d) Interest group Capture Flexible Jurassic
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Unit 3 Examination
24) Capture theory predicts that regulation will be found where there is/are market ______. a) b) c) d) perfection shifts imperfections regularities
25) ______ occurs when one group of customers pays more and another group pays less than the cost of providing their service. a) b) c) d) Market imperfection Free-riding Moral hazard Cross-subsidization
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Unit 3 Examination
Written Assignment for Unit Three

Be sure to refer to this course syllabus for instructions on format, length, and other information on how to complete this assignment. Please answer ONE of the following: 1) There has been much talk about electoral reform. Write a report describing some of the electoral strategies, the election nance laws, the pattern and purposes of campaign contributions. What do you think should be done to reform the system? 2. Compare the basic premises and/or assumptions of the three antitrust schools of thought. Give specic examples that the proponents of each school provide in favor of their opinions. Choose one of the schools and explain why you like it best. 3) There are several types of market imperfections. Explain the natural monopoly problem, the different manifestations of this phenomenon, and its results.
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You Can Do It
Unit 3 is done!
Youre close to the nish line
and were cheering you on to victory!
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Objectives
Chapter Number Eleven

Environmental Management and Sustainability
Learning Objectives Upon successful completion of this chapter, you should be able to: 1. 2. 3. Analyze the Coase theorem as it relates to social efciency. Recognize the importance of cap and-trade systems. Understand the role of politics within environmental protection.
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Overview
Environmental issues are very important, and environmental protection has broad public support reecting the substantial widely distributed benets resulting from that protection. Environmental protection, however, has very high costs, and those costs provide restraints on government regulation.
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Key Terms
The key terms listed below are terms you should be familiar with. Write your denition below each item. Check your answers at the end of this chapter. Command-and-control regulation: Incentive Approaches: Caps and trade systems: NIMBY movement:
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Summary
The costs of environmental protection are largely borne by private parties rather than by government budgets, so the politics of environmental protection involve powerful interests on both sides of the issues. Citizen opposition to certain forms of environmental regulation has developed in some situations. The Envirotest Systems Corporation (A) case in Chapter 2 illustrates an environmental revolt. Recognition of the high costs of environmental protection has brought increasing attention to achieving regulatory objectives in a socially-efcient manner. The Coase theorem applies to environmental issues, which means that there are a variety of incentive mechanisms for achieving efciency. Environmental taxes have now been used for CFCs and some other pollutants. Tradable permits systems are being used more extensively as discussed in the case. The chapter case Environmental Justice and Pollution Credits Trading Systems addresses a challenge to these systems. This case also includes a simple discussion of how such a system works. As another example of the point in the text that an externality is reciprocal, Fina, Inc. built a renery in Port Arthur, Texas in 1937. When it was built there were no homes near the renery, but subsequently a subdivision grew up next to the renery. When the subdivision was built, an externality resulted. Fina dealt with emissions, such as those that ate the paint on cars, by making small cash payments, as with a liability rule, to the residents of the Fairlea subdivision. The residents, however, decided to undertake a political campaign to force Fina to buy their entire subdivision. The political strategy involved lobbying, use of children to dramatize the claimed hazards, and even a media strategy orchestrated for the local TV stations. Fina eventually agreed to buy the 211 homes for a cost up to as much as $10 million, an amount that was more than its quarterly earnings. Fina responded to the externality caused jointly by the subdivision and its renery by removing one side of the externality. The Coase theorem applies to efciency and not to distribution, and one feature of environmental regulation is that there remains uncompensated damages. This provides incentives for additional regulation. The Environmental Protection Agency has the principal regulatory authority for the administration of a wide set of environmental laws. Its broad authority, however, is limited by the procedural requirements discussed in Chapter 10. In addition, many of the signicant regulatory actions by the EPA have been challenged in court by one or more of the sides of an issue. Regulation is subject to government failure as discussed in Chapter 10, and the Superfund is a good example of a widelycriticized program due to litigation costs and the high cost of cleanup for what some people argue yields only small benets. The performance of the Superfund would be a good subject for a lecture on the difculty of administering a cleanup program. Firms are increasingly giving higher status to internal environmental management units and are experimenting with approaches to environmental control. Environmental cooperation with NGOs appears to be a more productive approach to resolving certain environmental issues, and the McDonalds example and the other examples in the chapter illustrate the approach. General Motors and the Environmental Defense Fund signed a working accord in mid-1992. Dow Chemical Company has formed a Corporate Environmental Advisory Committee which reviews its plans for production and product planning four times a year. Chaired by David T. Buzzelli, a vice-president for environment, health, and safety, the Committee includes a former administrator of the EPA, a dean of environmental programs at a major university, and the head of an environmental research organization.
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Summary
Dow has also had its plant managers form local environmental advisory committees. Dows actions were not entirely applauded by the environmental interest groups. Daniel J. Weiss, a legislative affairs director of the Sierra Club, said Dow is a leading member of the Chemical Manufacturers Association, which he said routinely lobbies against laws aimed at reducing emissions. The companys engineers have realized they can save money by reducing pollution, but unfortunately that does not extend to their policymakers, Mr. Weiss said. They still use political money and their contacts to block legislation. Through its Responsible Care program the chemical industry has attempted to improve its environmental performance.
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Self Test
Multiple Choice Questions (Circle the correct answer) 1) What percentage of the GDP in 2004 did the EPA estimate that it would cost to comply with existing environmental regulations? a) b) c) d) 2.1 3.4 4.7 5.9
2) When is social efciency attained? a) b) c) d) Aggregate well-being is minimal Aggregate well-being is total Aggregate well-being is maximal Aggregate economic costs are minimal
3) Coases Theorem pertains to _______, including ______ and ________. a) b) c) d) Perfections; ethics; public goods Imperfections; costs; private goods Imperfections; externalities; private goods Imperfections; externalities; public goods
4) What are the keys to incentive-based approaches to meeting environmental goals? a) Imposes a cost and leaves it to individual polluters to decide how best to respond b) Imposes a ne and leaves it to government to decide the regulations c) Imposes sanctions of a certain limit and lets the individual polluters decide how to manage it within government guidelines d) Imposes a cost and dictates the incentives for managing the situation 5) From the Coasean perspective, social efciency is a problem because of _________to bargaining, which are referred to as ____________costs. a) b) c) d) Complexities; inherent Impediments; transactions Impediment; business Complexities; transactions
6) Why does government regulate automobile emissions? a) b) c) d) Exorbitant costs Unwillingness of business to cooperate at all Governments mandate to regulate all common goods Disagreement on the effects of automobile pollution as a problem
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Self Test
7) What approach has become an effective means of achieving environmental goals at the least cost to society? a) b) c) d) Command-and-control Incentive or markets Common goods International agreements
8) Cap-and-trade systems are also called. a) b) c) d) market systems tradable permit systems incentive systems governmental systems
9) _________ systems cap the total allowed emissions of a particular pollutant, issues permits for that amount, and allows the permits to be traded. a) b) c) d) Market incentive Kyoto Protocol Cap-and-trade Coases systems
10) What is the Kyoto Protocol concerned with? a) b) c) d) Trade and pollution Japanese cars and air pollution Global climate change Global ocean dumping
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Answer Keys
Key Term Denitions Command-and-control regulation: where regulators order engineering controls, such as scrubbers for electric power plants, or require the best available technology for pollution abatement. Incentive Approaches: take into account the benets and costs of attaining environmental objectives and achieve those objectives by aligning the social and private costs of pollution and its abatement. Caps and trade systems: caps the total allowed emissions of a particular pollutant, issues permits (entitlements) for that amount, and allows the permits to be traded. NIMBY movement: focuses on local environmental concerns, particularly as they involve possible risks to persons or property.
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Answer Keys
Answers to Self Test 1. a 2. c 3. d 4. a 5. b 6. a 7. b 8. b 9. c 10. c
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Notes
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Objectives
Chapter Number Twelve

Law and Markets
Learning Objectives Upon successful completion of this chapter, you should be able to: 1. 2. 3. Evaluate the economic efciency rationale as it relates to bargaining and intellectual property. Identify the components of a contract. Examine product liability as a branch of the common law of torts.
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Overview
This chapter introduces a set of concepts from the law pertaining to markets. The topics include the common law, property with an emphasis on intellectual property, contracts, and torts with a focus on products liability.
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Key Terms
The key terms listed below are terms you should be familiar with. Write your denition below each item. Check your answers at the end of this chapter. Common law countries: Property: Patent:
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Summary
Property is a central underpinning of markets, and intellectual property is perhaps the most challenging aspect of the law of property. Intellectual property law has both efciency and distributive effects. The latter motivates much of the politics of intellectual property, and the Chapter 1 case The Nonmarket Environment of the Pharmaceutical Industry identies the incentives inherent in the pharmaceutical industry, and the chapter case Patent Games: Plavix considers one episode. Intellectual property is also the central focus of the Chapter 13 case eBay and Database Protection case. The product safety problem is an important one for most rms. It centers on pure accidents, market imperfections that lead to injuries, and distorted incentives that lead to inefcient levels of care. As indicated in Figure 12-4, a producer must take into account in its ex ante decisions the ex post consequences of the use of its products. Product safety is costly, and the two costs are those associated with taking care and those resulting from the injuries and property damage. The Coase theorem provides a perspective on the socially efcient means of addressing the safety issue. It is important that students understand that, in the absence of transactions costs, efciency can result from any of the assignments of entitlements and their protection discussed in Chapter 11, but the distributive consequences and the transactions costs of the various assignments can differ substantially. The Calabresi and Melamed principles are important for reasoning about how in the presence of transactions costs entitlements should be assigned for social efciency objectives. One point that might be discussed in a lecture is that the liability system deals with the free-rider problem. Absent the liability system, a rm that produces a hazardous problem could have an incentive to free-ride on the quality image for the product class. For example, if the industry had voluntary product safety standards, a rm might be able to produce a product that does not meet the standards, sell it at a lower price, and benet. The liability system, however, forces that rm to bear the costs of the hazards associated with its product. The case of a woman who spilled coffee from McDonalds while she was driving and successfully sued for damages has been followed by additional coffee lawsuits in the United States. In April 2002 a judge in the United Kingdom dismissed 36 cases of individuals suing over alleged burns from fast food restaurant coffee. The British judge wrote, I am quite satised that McDonalds was entitled to assume the consumer would know that the drink was hot, and there are numerous commonplace ways of speeding up cooling, such as stirring and blowing. A British newspaper applauded the decision, Its wise judges like him that might, just might, stop this country sliding into the absurd compensation culture that has gripped America for years. The original McDonalds case arose when a 79-year old woman driving a car with an open cup of coffee between her legs was burned and required skin grafts. The jury awarded $2.7 million, and a judge later reduced it to $480,000. The two sides then settled out of court.
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Self Test
Multiple Choice Questions (Circle the correct answer) 1) The cornerstone of the free market system is what? a) b) c) d) The government Business Markets Competition
2) What is another name for common law? a) b) c) d) Judge-made Jury-made Public-made Citizen-made
3) In which of the following countries is common law not used? a) b) c) d) United States France United Kingdom Canada, except Quebec
4) In the United States, the common law prevails in all but which of the following? a) b) c) d) Property Contract Criminal Torts
5) ________ is a set of rights to control a tangible or intangible thing. a) b) c) d) Property Common law Civil law Contract
6) In the appropriability of rents, if the cost of replication is high, and intellectual property rights are _______, you have weak appropriability. a) b) c) d) tight loose exible redoubled
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Self Test
7) In terms of appropriability of rents, if the cost of replication is low and the intellectual property rights are tight, there is ___________ appropriability. a) b) c) d) weak moderate strong exible
8) Changing ____________ can dramatically alter the costs of replication of intellectual creations, as in the case of Napster. a) b) c) d) people tastes technology management
9) What is dened in the following? A ______ may be granted for an invention of any new and useful process, machine, manufacture, or composition of matter, or any news and useful improvement thereof. a) b) c) d) license patent contract copyright
10) What must you do to claim a copyright? a) b) c) d) File with the government You can claim it even if you do not le with the government File with local government File on your income tax
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Answer Keys
Key Term Denitions Common law countries: typically have an adversarial system of litigation in which each party advocates its side of the dispute and judges and juries render decisions based on the evidence, the arguments provided, and precedents. Property: is the set of rights to control a tangible or intangible thing. Patent: establishes a property right that allows the holder to exclude others from using the invention; that is, a patent grants a monopoly to the inventor.
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Answer Keys
Answers to Self Test 1. c 2. a 3. b 4. c 5. a 6. b 7. b 8. c 9. b 10. b
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Notes
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Objectives
Chapter Number Thirteen

Information Industries and Nonmarket Issues
Learning Objectives Upon successful completion of this chapter, you should be able to: 1. 2. 3. Examine the economics of online markets. Recognize the importance of privacy as it relates to the internet. Discuss tax policy in regards to internet purchases.
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Overview
This chapter presents selected topics pertaining to information industries and in particular to the Internet and electronic commerce. The topics include the economics of winner-take-most markets, Internet privacy, tax policy, and online communities.
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Key Terms
The key terms listed below are terms you should be familiar with. Write your denition below each item. Check your answers at the end of this chapter. Network externalities: Online communities:
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Summary
The Internet is a powerful information network that has had major economic and social impacts. It allows communication of information among remote users, serves as a platform for online markets and provides opportunity to individuals and businesses. The economics of winner-take-most is intended to be used in conjunction with The Microsoft Antitrust Case in Chapter 9 and with the eBay cases in this chapter. The Google cases in Chapters 1 and 16 involve nonmarket issues associated with Internet services. The economic concepts presented in the chapter for understanding certain information industries can be illustrated by the case of eBay. eBay was in effect the rst-mover in online auctions, and the network externalities were powerful. Demand-side economies of scale were present on both the buyers and the sellers sides of auctions. Those economies were stimulated very effectively through the development and support of trust. Trust allowed the community to grow, and collective lock-in helped retain that community. This allowed positive feedback to develop, and the market tipped in its favor. This effectively shut out competitors, although it is possible that Amazon.com or Yahoo! Auctions might eventually be able to successfully compete in the online auction marketplace. eBay expanded its scope through broadening the set of auctions it hosted and by allowing sellers to personalize their offerings. This strategy was successful in generating steady growth in revenue and prots. What eBay had not done was to take advantage of compatibility economies such as attracting complementary products. The chapter discusses its strategy to attract complementary products and programmers. To elaborate on the positive feedback, the rst-mover in this market attracted some buyers and sellers. As importantly, it had more buyers and sellers than did other sites. The larger number of buyers attracted sellers, and the larger number of sellers attracted buyers. This allowed for positive feedback to develop, and the community grew. eBay also beneted from collective lock-in, since it was very difcult to coordinate a collective move to another auction site by the traders in a particular item. Moreover, any individual seller risked losing access to the large number of customers. The sellers were thus in a prisoners dilemma. The same is true of the buyers, although they have more exibility to visit other auction sites, since they only bear search costs of doing so. Once positive feedback and collective lock-in occur, it is very difcult for competitors and new entrants to succeed.
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Self Test
Multiple Choice Questions (Circle the correct answer) 1) In the past ______ decades, the information industry has grown signicantly. a) b) c) d) two three four ve
2) Because the Internet is a network with economies that are quite different from those of markets for physical goods, network externalities and complementary goods that make _______and _______important characterize a number of lines of business. a) b) c) d) contracts; trust compatibility; standardization compatibility; trust standardization; contracts
3) The _____ _____ of information raises the issue of appropriability of rents from the investment of developing information. a) b) c) d) private rights public goods public rights private property
4) What is deposited on a users personal computer to track browsing? a) b) c) d) A donut A spy A cookie A cake
5) What is described in the following: The property that the value of the product to each user increases the more people that use it? a) b) c) d) Positive externality Entropy Stasis Network externalities
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Self Test
6) Network externalities yield _________returns on the demand side of the market. a) b) c) d) decreasing increasing immeasurably decreasing vastly increasing
7) A standard can either be ____ or _____. a) b) c) d) open; closed open; proprietary closed; proprietary closed; public
8) What type of market indicates that a single winner takes most of the market? a) b) c) d) Closed Open Competitive Tipped
9) An example of the tipped market was the rivalry between ____ and ______. a) b) c) d) Betamax and VHS IBM and Sun eBay and Amazon GE and Whirlpool
10) In the U.S., privacy and the Internet has been largely managed by ______. a) b) c) d) Government regulation Courts Lawsuits Self-regulation by companies
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Answer Keys
Key Term Denitions Network externalities: present when an individuals demand for a product is positively related to the use by other individuals. Online communities: a community of users who interact with each other as well as with a company.
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Answer Keys
Answers to Self Test 1. a 2. b 3. b 4. c 5. d 6. b 7. b 8. d 9. a 10. d
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Notes
143

Completing Unit Four Examination

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Unit 4 Examination
Multiple Choice Questions (Enter your answers on the enclosed answer sheet)
1) The Kyoto Protocol called for country-specic reductions in carbon dioxide emissions by: a) b) c) d) 2005 2010 2008 2006
2) Which of the following countries rejected the Kyoto Protocol? a) b) c) d) Russia India China Australia
3) The EPA was established in which decade? a) b) c) d) 1950s 1960s 1970s 1980s
4) How many employees did the EPA employ in 2008? a) b) c) d) Over 4,500 Over 9,800 Over 17,000 Over 25,000
5) The federal government can seek both criminal and civil convictions of polluters from: a) b) c) d) rms only rms, investors and customers rms and individuals individuals only
6) What is the name of the account that was established to clean up toxic waste disposal sites? a) b) c) d) Toxic Waste Cleanup Fund Superfund SuperiorFund ToxWasteFund
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Unit 4 Examination
7) Two complaints in terms of governments demands for cleaning up toxic wastes are: a) b) c) d) time and cost litigation costs and new standards for cleanup litigation costs and retroactive liability retroactive liability and time
8) Most of the costs of environmental protection are borne by: a) b) c) d) private parties government business all of the above
9) What is NIMBY? a) b) c) d) Not In My Best Year Not In My Backyard Not In Money By Years Not Involved More By Yards
10) A trademark produces what two values? a) b) c) d) economic and political economic and social economic and public social and private
11) Contracts are entered into to induce _______, which refers to a change in behavior by a party. a) b) c) d) assurances reliance common law exchanges
12) Which two of the following are ex ante concepts? a) b) c) d) conditions and statutes reliance and inducements duress and unconsionability duress and contracts
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Unit 4 Examination
13) Which industry highlighted in your text seems to struggle mightily with contract problems around research ndings? a) b) c) d) dairy automobile record biotechnology
14) What ex ante approach is based on the principle that more complete contracts can be more efcient? a) b) c) d) liquidated damages duress damages consequential damages expectation damages
15) What are torts? a) b) c) d) civil rights civil wrongs civil damages private wrong through public statutes
16) All of the following are the basic elements of a tort except: a) b) c) d) an injury an action that causes harm the breach of duty owed to the injured party the breach of utilitarian ethics
17) Which of the following requires the balancing of the costs of injuries and the costs of care? a) b) c) d) political efciency social efciency economic efciency technological efciency
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Unit 4 Examination
18) What is the leading online advertising services rm? a) b) c) d) DoubleClick Ads-are-Us MonsterBoard WebDesign
19) What is the stance of most business concerning legislating privacy rules for the Internet? a) b) c) d) support strongly opposed generally neutral lobbying for legislative passage
20) What are some of the components of self-regulation? a) b) c) d) policies and practices of companies certication by independent nongovernmental organizations personal protection by individuals all are components
21) What describes the European Unions approach to Internet privacy? a) enacted a directive (law) that strongly protected privacy for personally identiable information b) decided to follow the lead of the US and not pass legislation c) is considering strong legislation d) believes that privacy is an individual matter 22) Condence in the Internet is a public good, but the provision of that public good is subject to a _________ problem. a) b) c) d) network externality standardization free-rider customization
23) Why do online retailers ght tax collection for their items? a) b) c) d) it is too much of a bother they do not want to do the states work it would be prohibitively expensive they contend it would be too complex
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Unit 4 Examination
24) According to eBay, what is the key to its success? a) b) c) d) hard work privacy trust money
25) eBays ______ lives in the shadow of public order. a) b) c) d) public ordering private ordering exible ordering traditional ordering
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Unit 4 Examination
Written Assignment for Unit Four

Be sure to refer to this course syllabus for instructions on format, length, and other information on how to complete this assignment. Please answer ONE of the following: 1) Why is the Kyoto Protocol such as controversial agreement? Who is against it and why? Explain your stance on global climate change. 2) Discuss, analyze and critique the politics of products liability. 3) Describe the evolving information industry and some of the nonmarket issues that arise.
150
You Can Do It
Congratulations!
You have completed Unit 4.
Now lets sharpen our pencils for the Final Exam.
We are condent you will do well.
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Final Examination Instructions
About the Final Examination

After you have successfully completed all of the Unit Examinations and the Essay Examination, it will be time for you to take the Final Examination. As you will notice, no Final Examination is included with your Study Guide. The Final Examination will be provided by Student Services only after you have submitted the Final Examination Scheduling Form.
Scheduling a Final Examination

When it is time to complete your Final Examination, please complete and submit the enclosed Final Examination Scheduling Form. On this form, indicate whether this Final Examination will be sent to you or your designated Proctor. Please submit this form at the end of Unit Test 4. Your Final Examination will then be mailed to you or to your designated Proctor, based upon your degree requirements.
Submitting Your Final Examination

After you have completed your Final Examination, you or your Proctor will submit your Final Examination (depending on whether the Final Examination was proctored or unproctored), directly to the University for grading. The Final Examination may be submitted by mail or electronically via the Coast Connection student portal.
Additional Information
Detailed information on completing the Final Examination, Proctor requirements, how to challenge test items and how to submit your completed examination may be found in the Syllabus for this course. If you have additional questions feel free to contact Student Services at (714) 547-9625.
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Request For
Help Form
Please state your questions or comments and mail this form to 700 N. Main Street, Santa Ana, CA 92701, Attention: Student Services, or fax to (714) 547-5777. All questions will be answered promptly by mail or e-mail.
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Test Item Challenge

Form
Student Last Name _________________________________ Student First Name _______________________ Daytime Phone _____________________________________ Student ID _______________________________ E-Mail Address _______________________________________________________________________________ If your wish to challenge an examination item, please be sure to include the following: 1. Fill in the bubble in the F column on the answer sheet for the challenged item. 2. Identify the test you are working on (i.e., Unit Test 1, 2, 3, 4, or the Final Examination). 3. Identify the specic question number you are challenging. 4. Write or summarize the question, and then answer it in a few sentences. 5. Provide a page reference from the textbook to support your answer. 6. Staple the form, your challenges and any other work papers to your answer sheet and submit them by regular U.S. mail to the Testing Department. If you need additional space, please feel free to attach an additional sheet of paper. _____________________________________________________________________________________________
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Test Item Challenge

Form
155
Final Examination
Scheduling Form
The University requires a certain number of Final Examinations to be completed under the supervision of a Proctor. At the time you enrolled or reinstated your program, you were given the total number of proctored Final Examinations required for your degree program. If this Final Examination is to be proctored, please provide information on your designated Proctor. Otherwise, please complete Student and Course Information only and submit this form with your Essay Examination.
Date _____________________________ Student I.D. ______________________________________________ Student Name ________________________________________________________________________________ Student Address ______________________________________________________________________________ City __________________________________________________ State _________________________________ Zip Code ________________ Country ____________________________________________________________ Student E-Mail Address ________________________________________________________________________ Daytime Telephone _____________________________ Evening Telephone _____________________________
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Notes
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Business and Society

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700 North Main Street, Santa Ana, CA 92701

Business and Society

Thomas M. Neal President

Business and Society

Course Number Course Title Catalog Description

Units of Credit Course Goals

Business and Society

Business and Society

Your Course Grade

Students are required to receive a passing grade on all examinations.

Before Beginning Your Course

Business and Society

Mastering the Course Content

Business and Society

Completing the Unit Examinations

Business and Society

Written Examination Instructions

Business and Society

Challenging Examination Items

Business and Society

Preparing Your Answer Sheet

Submitting Unit Examinations by Mail

Submitting Unit Examinations via the Internet

Business and Society

Receiving Your Unit Examination Grades

About the Final Examination

Business and Society

Scheduling a Final Examination

Submitting Your Final Examination

Receiving Your Final Course Grade

Business and Society

Your Overall Grade Point Average

Second Grade Option

Business and Society

California Coast University

Business and Society

Business and Society

Business and Society Table of Contents

1-08 09-17 18-27 28 29-33 34-35

36-44 45-52 53-61 62-70 71 72-76 77-78

79-87 88-97 98-107 108

Unit 4 Examination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145-149 Unit 4 Essay Examination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150-151

Business and Society Table of Contents

153 154-155 156-157

Business and Society

Chapter Number One

Business and Society

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Answers to Self Test 1. c 2. c 3. d 4. b 5. b 6. d 7. c 8. d 9. d 10. a

Business and Society

Chapter Number Two

Business and Society

Business and Society

Business and Society