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Explain, with examples, how nonmarket issues originate.
Business and Its Environment
Edition: 7th
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Nonmarket issues originate from both external forces and a firm's own actions. Nonmarket issues have five basic sources:
Scientific discovery and technological advancement can produce fundamental changes in both the market and nonmarket environments. In the market environment, they create opportunities for new products and processes, new applications of existing knowledge, and the foundations for future discoveries. They also give rise to nonmarket issues. Nonmarket issues can also arise from new technology and scientific uncertainty.
Nonmarket issues also arise from changes in understandings. The environmental
Movement brought to the attention of the public damage to the natural environment and the associated health risks. Renewed confidence in markets and the failure of socialist economic systems spurred a wave of privatization in both developed and developing countries. Increasing evidence of the economic benefits of international trade led not only to further reductions in trade barriers through the WTO but also to market integration in North America through the North American Free Trade Agreement (NAFTA) and in the European Union through the Single European Act.
Nonmarket issues also arise because of institutional actions. A Supreme Court decision in
1988 supported a new theory of fraud on the market, under which a firm could be held liable if its stock price fell significantly when the firm's projections of future earnings had been favorable. This provided incentives for trial lawyers to file class action lawsuits against high-technology companies when their naturally volatile stock price fell. No evidence of fraud was required to file a lawsuit, and filing allowed the lawyers to conduct discovery and depose company executives.
Change in the nonmarket environment also comes from market forces. In the mid-1990s, new markets associated with the Internet, wireless systems, and integrated services resulted in a restructuring of the telecommunications industry, including mergers, acquisitions, and strategic alliances. Congress then struggled with legislation to lift the archaic restrictions on competition left over from the era of regulation. The demand for mobile communications technology and social media led automakers to equip cars with devices ranging from GPS navigation systems to handless communications systems to onboard televisions. Those market forces Contributed to the issue of distracted driving, which accounted for a growing share of traffic fatalities and injuries.
Nonmarket issues also arise because of heightened moral concerns. Privacy concerns associated with the Internet resulted in both self-regulation by Internet service providers and Web sites and calls for new legislation. In the European Union, privacy concerns led to strong legislation on the handling and use of personal information on the Internet. Moral concerns were also raised about subprime lending to borrowers who did not qualify for bank loans, leading to regulations to limit predatory lending. Moral concerns about the spread of AIDS in developing countries and the suffering of its victims resulted in pressure on pharmaceutical firms to lower their prices for AIDS drugs.
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