Thursday, May 12, 2005

Tip from Lawrence Russell Strategy Guide

Capitalism Game Series

Since most of the tip in this guide is still applicable, we can recycle it by direct quote. Re-inventing the wheel is not a productive exercise. Cheers.

TIP I know that there is an overwhelming impulse to jump right into a computer game when you first get it home. You must fight this temptation. Spend some time up front to learn how to play Capitalism properly, and it'll pay big dividends later in reduced aggravation.

TIP Words or phrases appearing in the Glossary are italicized the first time they are used in the main body of text.

TIP In the option headings that follow, the bracketed letter [] denotes the keyboard equiv¬alent that may be used to make these selections

TIP Capitalism automatically assigns an alphanumeric filename to each of your saved
games. You may change the assigned filename to any filename of your choosing that is from one to eight characters as long as you maintain the .sav extension. The saved game will appear on the ros¬ter under its new filename.

TIP In the business world, information itself is a valuable commodity. Ideally, you would
want to receive as much news as possible. Unfortunately, game play is interrupted when a newspa¬per is displayed', and after a while this can become annoying. For this reason, you can cut back on the newspapers you receive. You'll have fewer interruptions, but be aware that you also might miss something important

TIP For the purposes discussion, consider a block to be the size of a single firm. Therefore, the detail map displays an area equivalent in size to fifty-four firms.

TIP Apparently, the raising of livestock is not affected in any way by climate or environ¬mental conditions. If you choose to, you can keep chickens in areas with very high temperatures or even raise cattle in spots that are entirely lacking water. You can build farms anywhere without wor¬rying about the quality or quantity of your livestock being harmed.
TIP Never spend a dollar on training and equipment programs for raw material produc¬ing firms (Mining, Logging camp, or Oil-Extracting units). The increase in productivity is hardly ever required and certainly not worth the extra money. The site is likely to run out of raw material just about the time your training and equipment efforts kick in.
TIP Once you enter custom game settings, they instantly become the default settings for
every subsequent new game you wish to begin.

TIP None of these preceding decisions affects the play of the game. Names, colors, and logos are all equal and are neither good nor bad when it comes to determining difficulty levels and r TIP Note that the word revenue was used and not profit. Retailing is an expensive propo¬sition, and although the money comes rolling in. it's often a long time before your income will exceed your outlay.
TIP Consider raising chickens first over other types of livestock, especially when cash is scarce. Chickens produce two food products (frozen chicken and eggs) that require single-step manufacturing as opposed to the types of livestock that only produce one food product.

Learning to play Capitalism is easy; learning to master the game is exceedingly difficult. It is safe to say that outside of Trevor Chan, his design team, and the quality-assurance people at Interactive Magic, I have probably spent more time experimenting with the game than anyone else in the country. Still, despite the enormous time I've spent playing the game, I do not consider myself to be a master-level players.

Therefore, early in the process I decided to enlist some outside help in for¬mulating business strategies that I could then share with the reader here. Two experts at Capitalism, L. Drew Davis and Jeff Wang, ultimately came to be involved in the project, that is, they knew more than I did when we started, so that makes them experts in my book. Comments from these two experts appear along with the discussions in this chapter.

L. Drew Davis
The following is drawn from material submitted by Davis and is based on his extensive play and study of Capitalism.

John Pierpont Morgan, a nineteenth-century investment banker, once said that "buying low and selling high" was the best way to get rich. Well, that's good advice from a guy who should know. Like a good capitalist, J.P. Morgan put his money into investments he believed would make him even more money. One of those investments just happened to be United States Steel Corporation.
Morgan, it turns out, was right most of the time; at least he was right enough times to make him one of the wealthiest men of his day. Capitalism gives you the same opportunities to make money that were afforded to Morgan. Indeed, your chances of becoming wealthy are even greater than were his. You have a degree of control over events in the game that Morgan could only wish for in real life.
What follows is my approach to playing the game of Capitalism. I have taken my cue from J.P. Morgan and applied his theories on business to my own style of play. I don't represent that any of the following advice is foolproof, however, or that it will work for you in every situation you encounter. In fact, the validity of the strategies outlined below depends, in large part, on the gen¬eral business environment in which you are playing.

If you're in business to make money (and who isn't) one of the most lucrative business structures you can devise is known as a vertical monopoly. A vertical monopoly is formed when a single corporation is able to produce and distrib¬ute a product entirely through its own internal means. In other words, when a corporation owns (or produces) the raw materials, the manufacturing facili¬ties, and the retail distribution centers for a product, it is said to possess a ver¬tical monopoly. Figure 7-1 illustrates this vertical monopoly.
To further illustrate this vertical monopoly structure, consider the follow¬ing example: Three Brothers Corporation owns a logging camp that consists of several logging units. This logging camp is situated on a viable source of raw timber that it processes into industrial-grade timber. Profit is made from the sale of this timber. This is the first step up the production ladder.

Setting up a vertical monopoly can become a complicated and expensive proposition, but it is a powerful tool for generating profit and fighting off competition.

From the logging camp, the timber is transported to a factory, which is also owned by Three Brothers. This factory is geared to the production of beds, a finished consumer product. Profit is made from the sale of these finished beds.

Three Brothers is also fortunate enough to operate a department store located near the center of Seattle, a city boasting a population of over 1.5 mil¬lion people. Because these people like to sleep on comfortable beds at night, and because Three Brothers advertises its beds as being very restful, retail sales are always high. Profit is again made from the retail sale of these beds. This transaction between consumers and Three Brothers constitutes the last rung on the vertical monopoly ladder.

The benefits of the vertical monopoly structure should be readily obvi¬ous. Three Brothers has taken a raw material (timber) and turned it into a finished consumer product (a bed). Not only that, it has also managed to derive not one profit, but three, in essence making money at each step of the process. This doesn't necessarily mean that the actual amount of money taken in is greater. It only means that the profit is divided among several firms within the corporation.

Vertical monopolies bring about other benefits, one being price control. Because Three Brothers owns the raw timber it creates, it can sell this timber to the factory at a "friendly" price. In turn, the factory sells its finished prod¬uct to another Three Brothers' firm, and the price it charges for its beds is also friendly.
Market and supply stability is another important benefit, which should not be overlooked. The factory is guaranteed a stable market for its product because it will sell internally to buyers within its parent corporation. The department store is guaranteed a stable supply of beds because it will buy directly from an internal supplier, one within the parent corporate structure.
Profit Shifting
One of the biggest benefits to establishing a vertical monopoly is the profit shift¬ing ability it gives to a corporation, which allows it to move profit margins (as well as cost burdening) from one sector of the corporation to another. As you can see, profit shifting gives a corporation tremendous advantages over its smaller competitors. Smaller companies, lacking the resources to diversify, can be driven right out of business by a well-conceived attack based on profit shifting.
Profit shifting can be useful to help keep individual firms with a corpora¬tion profitable at the expense of others. More often than not, this strategy is used as a weapon against competing corporations. When competitors are pro¬ducing the same goods as your own corporation, profit shifting can be used to target critical links in their production chain.
For example, let's say Anlin Corporation is heavily invested in the timber market. For years it has been selling raw lumber to customers whom you would rather have buying lumber from you. Now you are ready to strike back at Anlin by stealing its customers and wrecking its lumber business in the process.

Providing that the quality of your goods for sale is relatively equal to those being sold by Anlin, the best strategy would be to undercut the price that Anlin

charges for its raw timber. Now the question becomes: How do you institute a price war without suffering crippling losses in the process? Profit shifting is the answer.
At every step in the vertical monopoly process, parts of your corporation have had a chance to earn a profit (or suffer a loss) by charging a premium for their services. Because any profit earned by part of the corporation belongs to the entire corporation, the actual profit margins of the individual firms are rel¬atively meaningless. They can be set high artificially to assist one specific sec¬tor of the corporation, to the detriment of another, or set low to cause a loss to the benefit of another.
Keep in mind that the only price that really matters is the final one charged to the customer, whether that customer is a competing business entity or a retail consumer. So how do you use profit shifting against Anlin Corporation? Simply, you lower your price for raw timber below Anlin's price. Because Anlin doesn't want to lose its customers, it will likely respond by lowering its price below yours. Congratulations! You've initiated a price war! You'll be able to watch this happen on the Product Summary report.
Your response to Anlin's move should be a further reduction in your price. Every time they drop their timber price, you drop yours. Because of profit shift¬ing, you can drop your timber price indefinitely. Your only concern is the price of beds, not the price of timber. You can continue to drop your timber price without harming your corporation's revenue, until Anlin decides to call it quits.
Eventually, Anlin will find that it is no longer profitable to continue selling timber and get out of the business altogether. It may take a while because their executives will hang on, hoping you'll get tired of the game. But in the end, your corporation will be left in sole possession of the battlefield-that is, the timber market. You've won the day, but at what cost? Let's analyze the price of your victory.
The profit shifting strategy has allowed your corporation to survive a price war with Anlin without suffering a loss. Normally, cutting prices would lead to a drop in profit, but here no profit has been lost, just shifted to other parts of your company. While your timber-producing firms slash their prices and start to lose money, customers benefit by being able to take advantage of these lower prices. What your corporation loses in profit it makes up for in savings elsewhere because it is purchasing timber from itself.
In fact, your timber-producing firms will probably lower their prices so much that they begin to operate at a net loss. Heck, it is conceivable that your firms could reduce their prices to one cent, virtually giving their timber away. It makes no difference, however, as long as the product is being sold internally. The profit margin can be divided among-the rungs of the production ladder, simply by adjusting the selling prices at each step.
On the other hand, the damage you have inflicted on Anlin may force it into bankruptcy or receivership. Its stock price may sink low enough to war¬rant buying up stock in Anlin Corporation yourself. Why not? It still has lum¬ber resources that would look good on your corporation's spreadsheet. Plus, all the damage you've inflicted is reversible. Once you merge the two corpo¬rations, you will have twice the lumber assets you had at the start of the price war and be in a good position to begin raising prices.

Defense Against a Vertical Monopoly
Now that you know how to use vertical-monopoly tactics against other cor¬porations, you better know how to defend yourself against the same kind of assault launched against you. Competing computer controlled corporations aren't stupid. They operate under a predetermined set of artificial-intelligence guidelines, so you can expect to be attacked in similar ways. There are two pri¬mary ways to defend yourself against vertical monopolies: product diversifi¬cation and R&D.
Product diversification can be summed up with the simple concept of not putting all your eggs in one basket. In the preceding scenario, Anlin Corporation was beaten because it had concentrated too much emphasis on selling timber. Consequently, when it found itself having to deal with a threat to its core busi¬ness, it was unable to respond effectively. Without a diverse line of products to fall back on, Anlin had no means of holding out; once its timber business was threatened, the corporation was effectively placed under siege.

A company that owns a source of chemical minerals and a secure supply of plastic can produce a wide variety of products. Such diversification gives a company the ability to defend against "price war" tactics waged by a competitor.
It is unwise to wait until you are attacked to begin thinking about alterna¬tive product lines. It is difficult to buy into a new market when your revenue is dwindling. The best time to start exploring alternative markets is when your corporation is expanding and flush with capital. Don't wait. You cannot start diversifying too early in the game.
R&D is the second method of responding to the tactics of a vertical monop¬oly. Although product quality should never be overlooked as a general rule, a good R&D program is fundamental in waging an effective defense against a vertical monopoly.
A solid investment into R&D keeps the quality index of your products high. This is an essential factor in fending off a potential price war. Price¬-cutting vertical monopolies have a hard time making this tactic work against high-quality goods. You will note the disparity in overall value on the Product Summary report between higher- and lower-quality products.

Basically, high-quality goods can substitute their higher quality rating for the lower price being charged because of the vertical-monopoly assault. Even if the competition lowers its price to almost nothing, you will be able to sell at least some of your goods because high-quality products will always attract a certain percentage of customers.
Never forget R&D. Once a vertical-monopoly assault on your company begins, it is too late to begin researching a line of products. First, it's an expen¬sive proposition to undertake in the midst of a price war; and second, there's a minimum lead time of at least six months. That's too long to wait "when the wolf is at the door." Invest in R&D early and often.

When first starting your corporation, it is extremely important to choose cities with large populations full of eager consumers. The more people concentrated

within a city, naturally, the more consumers you will have to purchase your products.
After deciding on a location for your business, check the product sum¬maries listed for that city. The Product Summary report's graphs will give you an idea of the total market size that exists. Initially, your corporation will have only limited funds. This means you won't have the capital to move more than two different products. So if you're going to devote time, effort and floor space to selling just a few products, try to pick products with the largest retail mar¬kets. Choose wisely! You will only get one chance to do this correctly. An incor¬rect choice at the beginning of the game could put your corporation hopelessly behind the competition.
Concentrate on simple retail selling at first. You know that you can always buy and sell products from yourself. (Your competitors may not be so oblig¬ing.) Regardless of the business in which you get involved eventually, it helps immensely if your corporation maintains a strong retail arm. Always go into the retail business.
Aside from the products you purchase from others for re-sale, choose only those products that have short production chains and few raw material inputs. Products such as beds (timber) and jeans (textiles) require only one material input. They are easy to manufacture and distribute on the retail level. Beer (aluminum and barley) and diapers (paper and cotton) require two inputs but are still easy to manufacture internally. Both have large retail market sizes.
Another good industry to get into initially is food, particularly frozen meats. Although the competition is sometimes heated and the profit margins are tight, you can sometimes carve out a niche that will turn a buck or two. Remember, every one of those consumers has to eat every day. To paraphrase a famous quote, "Let them eat steak." Preferably the steak they purchase is from one of your department stores.
As profit from your initial retail sales begins to roll in, you can begin expanding your product lines. Start by adding goods that complement the products you are already producing. Perhaps you might consider producing leather along with milk or detergent as well as toothpaste.

Don't even think about producing raw materials at the start. You cannot afford it and you will not be able to make money doing it. Produce raw mate¬rials only when it is necessary to make a product or when a wide variety of products can be made from the material (e.g., chemical minerals or plastic). A single mine can feed a dozen manufacturing units before becoming fully utilized. A little raw material goes a long way in Capitalism.
Keep an eye on the competition when you are starting a corporation. While you may be "king of the hill" this year, competing corporations are quietly investing in R&D. They are busy corning up with new products designed to make yours look like yesterday's news. Competitors will leave you in the cold if you're not careful. Be sure to have your own R&D projects in the pipeline. Brand loyalty will only carry your products so far before your customers desert you for a higher-quality product. Everyone likes to think that they are getting value for their money, and computer-generated customers are no different.

Although there is plenty of fast money to be made in the stock market, the real money comes only from having a long-term investment strategy. Taking hurried positions in the stock market is wasteful because rushing in and out of stocks almost never results in a profit. Make a plan and stick with it, even if that plan takes five or ten years to payoff. But, while planning for the long term, always write flexibility into any of your schemes. The stock market is a dynamic place that rarely looks the same when viewed from different angles.
Remember that money made in the stock market is relative only to the moment. In many cases it is illusory and exists only on paper. The real path to riches comes from corporate stability and steady growth. Your corporate earn¬ings are the only means of investment capital available to you. By all means invest in the stock market, but never neglect or jeopardize your corporate health to do it.
Assuming that you have been doing your job properly as chairman and CEO, your corporation's stock price will increase steadily. This is by far the best way to make money in the stock market, managing a successful business

that earns profit for its shareholders. But investing in other corporations can also earn you money, if you manage to pick the ones that will not be in direct competition with your own.
Investing in corporations that are your direct competitors is like betting that they can play the game better than you can play it. Are you planning to fall behind the competition? Is this part of your overall business strategy? Of course not. True, computer managed corporations often have advantages that you do not, in terms of starting resources and special CEO talents. In the long run, however, your corporation will likely do better than the others. Usually it is better to keep your money at home, readily available to invest in your own corporation.

Merging Corporations
Merging your corporation with another requires that your corporation own at least seventy-five percent of the other corporation's outstanding shares of stock. Acquiring that much of a stake in another company takes a lot of money, money that could probably be better spent doing other things.
Whatever you do, don't get caught up in merger mania. You can end up paying as much as three times the value of the stock. Once it becomes known that the stock is in play, you must account for the increase in share price that will occur. Stubborn private investors will jealously hang onto their shares denying you the opportunity to amass the required seventy-five percent own¬ership. More than likely, they will force you to purchase their shares at ridicu¬lously inflated prices. How bad did you want to merge?
Very few corporations are worth that kind of investment. A good rule of thumb is that mergers are only worthwhile when the other corporation fits in nicely with your overall strategy. Presuming you are eliminating another competitor by merg¬ing with a corporation is a mistaken objective and is never a good idea.
Find corporations instead that will strengthen your market position. For example, the prospective corporation may have factories from which you buy products to sell in your department stores or vice versa. Another example might be a corporation that possesses technology that your corporation needs to improve its quality of goods.
Making money is a hard thing to do. Losing money is far easier. In fact, when you first start playing Capitalism, losing money is almost second nature. It may even seem unavoidable. So, as long as you're going to lose money, at least try to get something for it.
Let me take a moment and describe some of the ways your corporation will lose money and how you can profit by this loss. Now that may sound a lit¬tle strange to you at first, but consider the following examples.

Training and Equipment
One of the fastest and most common ways to drain your corporate treasury is through uncontrolled and ill-timed spending on training and equipment. By all means invest in your employees, but be careful. The slider bar makes it easy to miscalculate and overspend. Keep in mind that you can spend up to $4,000 each month per employee.
Four-thousand dollars is a lot of money when you figure that an average department store, one selling four different products, has as many as forty-¬nine employees. That amounts to almost $200,000 per month in training and equipment expenditures on just one firm! Add in the cost of salaries and you are spending close to $300,000 each month on your personnel. This kind of spending is guaranteed to land you in the poor house very quickly.
At the same time, investing in training and equipment should be a part of your long-term strategic plan. Training and equipment are necessary expenses that will reduce your bottom line, yet build worker competence in the process. If you intend on remaining in business, improving the productivity of your employees is mandatory. Go ahead, spend the money wisely; just be sure you are getting something that benefits your long-term plans.
Borrow Money from the Bank
Another way to overspend money is to borrow every dime the banks are will¬ing to lend you. One thing you will notice when you play Capitalism is that the lending policies are very loose. The banks are quite willing to loan you any amount of money as long as you pay the interest at the percentage rate they're asking. Get your money's worth.
Fortunately for the banks, you do not have the option of withholding pay¬ment. They make sure they get your money before anyone else does. For¬tunately for you, the rates usually being charged (5 percent) are not overly egregious. Borrowing $10 million from the bank at 5 percent interest will only cost your corporation $41,666. That's less than the usual cost of advertising a single product each month.
As anyone with a credit card around the Christmas season can attest, easy credit is a trap. You start out by borrowing $10 million because you think that $50 thousand each month, give or take a few thousand, isn't a lot to pay for the privilege of using that much money. Well, heck... what's another $10 million? After all, the factory does need a new coat of paint.
Borrowing money can become a fast way to get behind. You find it easy to start out borrowing just a little, but before you know it, you can end up in major debt. Be wise and get something for the money you borrow. Use borrowed money sparingly and only when absolutely necessary.
Loss Leaders
Selling products for less money than it costs to produce them is a sure fire way to reduce your bottom line. You're no doubt reading this and saying to yourself, "I'll never do that;" but I'm telling you, "Yes, you will!" There are many reasons why this happens during the course of a game: neglect, incom¬petence, and even sudden market changes that go unnoticed. It can also hap¬pen by design.
When you sell products at a loss intentionally, you do so to attract new customers. These products are referred to as loss leaders because they lead customers into your stores. While the customers are there, your sales staff has the perfect opportunity to sell them something else.
Select your loss leaders carefully. Accept losses in markets where you can gain market share and brand awareness from the increased sales. If you have little retail presence, but rely principally on manufacturing, accept losses on products sold to one particular corporation. The increased profit given to that corporation will raise their stock price. Now, if you just happen to own stock in that corporation, so much the better.

Jeff Wang

Now a few tips from another expert to help you triumph in the world of Capitalism.

All right, let's say that for the last few years your corporation has been posting modest but consistent profits. Unfortunately, one of your larger competitors, Maple Five, has just decided to enter into markets previously reserved for you. The gauntlet has been thrown down. Now you must respond!
There are a lot of different strategies that you can pursue in this situation. One halfway measure would be to immediately start lowering your prices. This hurts your bottom line and takes a while to really become effective. On the other hand, if Maple Five does not respond quickly, it will start losing product loyalty.
For a more intense war, designate a retail outlet in every city as a "war head¬quarters." Load these department stores with products that you know Maple Five is selling. Once your sales capacity and production lines are in place, ini¬tiate a price war by undercutting the competing products. The stores that serve as your war headquarters will lose money, which is to be expected. But with any luck you force Maple Five to respond in kind, lowering its revenue stream just when it has invested big money and can least afford it,
Now for a really down-and-under tactic, make a product that you know Maple Five wants. Entice the executives over at Maple Five into buying your product by offering them high quality at a low price. Once Maple Five has committed to buying your product, jack the price through the roof and watch them lose millions. This strategy will take some lag time before they realize they've been had. In the meantime you'll be cleaning up at their expense.
For example, if you are selling cars, you could conceivably raise the price of an automobile to $60,000. If a month goes by before Maple Five catches on

to your scheme, you stand to make $40,000,000. Better yet, you've managed to take that money directly from your main competitor. It's better than receiv¬ing a government grant.
Another down-and-under tactic is to corner the resource side of produc¬tion. For example, if you own all the silica mines and don't sell to anyone out¬side your corporation, no glass or products that use glass can be made. The ripple effect is tremendous.
Without glass, no wine, bottled milk, or perfume can be produced, and what's more, no silicon can be manufactured. This means that your corpora¬tion will be the only one able to make the electronic components that go into products like televisions, video-cassette recorders, and desktop computers, as well as the glass that goes into making windshields for automobiles. Consider the diagram in Figure 7-3, and you begin to get the idea about product bot¬tlenecks. Imagine playing a game in which you are the only corporation to pro¬duce and sell glass, perfume, wine, cameras, televisions, video-cassette recorders, video cameras, and cars. Wow! Talk about stacking the deck; these are all high-profit industries.

Be aware of product bottlenecks. Glass, for example, is necessary for the production of a wide range of products.


The secret to success in playing Capitalism is being able to design your firms for maximum efficiency. Unless you are creating firms for specific reasons, most designs are more or less generic. However, there are correct and incor¬rect ways to set up your firm's internal structures.

Department Stores
Department store layouts are largely standard. Usually the most cost-effective and efficient setup consists of four pairs of Purchase and Sales units arranged around a centrally located advertising unit. This gives your store the capacity to sell the maximum number of products that can be sold in a single firm. Of course, if you need to include a private-labeling unit, this will reduce the num¬ber of products you can sell accordingly. Other potential changes include doing away with the advertising unit, but this is not recommended.

This diagram depicts the standard four pairs of Purchase and Sales units that surround the obligatory advertising unit. This arrangement allows you to market the maximum number of retail products.

Research and Development Centers
Designing R&D centers requires no thought. Because these firms are so expen¬sive to build and maintain, you'll want to get everything you can out of each one. Therefore, each R&D center should consist of nine R&D units. The nine units can then be linked in any combination you desire based on the number of products you wish to research.

Farms and Factories
The internal structure of your farms and factories depends very much on your strategy. First of all, consider what it is you want to produce in this location. Be

sure that it is something that will fill up all nine spaces of your factory. You might want to have two manufacturing units for each pair of Purchase and Sales units.
If it is a farm you're designing, you might want to have in place two livestock-¬raising units for each livestock-processing unit. Often, pre-consumer prod¬ucts can feed more than one manufacturing production line.
Of course any internal setup has to take into account who your customers will be as well as the number of customers to whom you anticipate selling your products. If you are selling to other corporations, the more production the bet¬ter. On the other hand, if you are only selling to firms belonging to your corporation, you must make sure that you are not over or under producing in comparison to your selling power.
Following are some general hints for playing Capitalism. They are categorized according to each area of the game.
Stock Market
The stock market is driven by a couple of factors in addition to just plain greed and insider information. The most important factor is corporate profitability. A profitable company will naturally tend to see higher stock prices. This is because investors are willing to pay more for shares of a profitable corpora¬tion than one that puts their money at risk. High profit earning ratio and large dividend payout are two factors that also raise stock prices.
Taking Stock in Your Company
The key to doing really well financially is owning stock in highly profitable corporations, starting with your own. Ideally you will want to possess 100 per¬cent of your corporation, but this is not always possible. Owning a greater percentage of your corporation's stock means that you will initially have less money to invest. Still, you will never have to worry about being bought out by another investor.
At the other end of the spectrum is the situation where you have issued so many shares that you will never be able to buy them all back. Although this means you will never own a majority stake in the corporation, neither will anyone else. This kind of approach allows you to start out extremely fast with lots of money.

Loans or Cash
One of the biggest differences between a conservative CEO and an aggressive one is the manner in which that person treats borrowed money. Using a cash only approach can slow down your corporate expansion. However, borrow¬ing money and having to pay the interest percentage can produce quite a drain on your available cash each month.

Training and Equipment
Training and equipment is very important to your long-term viability. Higher BFU levels mean more efficient research, greater purchasing and sales capac¬ity, more productive manufacturing, and even faster mining capabilities.
Investments in training and equipment can be very expensive. You will not have enough money to spend on training and equipping all sectors of your cor¬poration evenly, so you will be forced to pick and choose carefully.
Of all the sectors in your corporation, your R&D centers are most in need of training and equipment. They will be around for a long time, and they will not stop being R&D centers. Once they reach higher BFU levels, the advan¬tages they bestow on your corporation are profound, although they are not readily apparent. .
The second area in need of training and equipment is your corporate farms and factories sector. Again, farm units will not change what they are doing very often. Spending money for training and equipment on firms that produce raw materials is probably wasted effort. Mining firms, logging camps, and oil well fIrms rarely run over capacity, and the quality of the products you produce is improved minimally.
In the early stages of a game, department stores are not a good choice for training and equipment expenditures. During the later stages of your corpo¬rate life, it might be profitable to invest in training and equipment to increase the stores' selling and purchasing capacities.

Research and Development
You can never start too early or spend too much on R&D. It is your key to pro¬ducing high-quality products. The open and unresolved question is deciding how many R&D centers to build and how many products to research. Each R&D facility drains $400 thousand from your profits each month, so you obviously can't support too many centers.
When you are first starting out, two R&D units per product is adequate to maintain a competitive advantage. However, later on, three units per prod¬uct will be necessary to stay even, and up to five units will be needed to stay ahead of the competition.
Concentrate on researching the products that you are selling. Make sure that you have the R&D capacity in place before you enter into new product lines. You'll fmd that sometimes it is also profitable to take over a corporation for its R&D program just before it goes bankrupt.
Acquisitions and Mergers
Merging your corporation with others is one of the fastest ways to expand your business. The first step in the acquisition process is doing your homework and choosing a target corporation. There are basically two criteria: compatibility and affordability. Before you attempt a merger, make sure it is a corporation that has what you need. The object of a merger is to become something that is greater than just the sum of the individual parts. The target corporation for your merger should accentuate the strengths of your corporation; otherwise, don't bother merging.
The second criteria is affordability, which is a two-step process itself. First, check your financial report and factor in your credit line, your cash, the target corporation's cash, and stocks (if you want to sell some) to see if you have enough money to see this deal through. To arrive at a proper estimate, try this: Take the remaining public shares, double their value, and then take the remain¬ing private shares and triple or quadruple their value. Second, decide whether the number you arrived at in the first step is worth it. Value department stores at four-million dollars, factories at two-million dollars, R&D centers at six¬-million dollars, etc. If you are going to issue stocks to finance the merger, then value them at three times their issuing price for the pain that you're going to have to go through buying them back (assuming that you will buy them back). Then look at the price.
The next step is the acquisition itself. Note that it is much better to have the money to pay for outstanding shares for the merger than it is to issue stock. The final cost to you is much less. Another way to reduce the cost is to buy at the beginning of your bid and sell at the end of your bid. This way, you can reduce significantly the cost of the purchase and also give yourself a rather tidy profit.
The final and most important step is the integration of the purchased cor¬poration. Make sure that the firms you just obtained as part of the merger are assimilated properly into your existing corporate structure. This means mak¬ing sure that your new factories are producing the goods you need and selling them to who you want.
You also want to make sure that your newly acquired department stores are only buying products from sources that are internal to your corporation, if possible. It's also a good idea to give your R&D centers the "once over." Check to make sure that they are researching the correct products.
Be ready to shut down a few firms if they are completely useless. For exam¬ple, you might end up with three tobacco farms when you have only one cig¬arette company. With good management, you should be back making money within the fJI'st month after the merger, and hopefully payoff the merger in ten to thirty months.

Following are some key factors to consider to ensure that your corporation maintains a high level of profitability throughout a game.

What is the Most Profitable Product?
Not all products in Capitalism are designed and produced the same. Some are more profitable to produce than others. Wouldn't it be nice to know which products will make you the most money?
Cars (automobiles) are the most profitable products to produce. Like Henry Ford, you can make a lot of money in the automobile business. Unfortunately, the automobile industry requires a tremendous initial invest¬ment in infrastructure.

For example, building a car in Capitalism requires three product inputs: car body, engine, and wheel & tire. Building a car body requires three additional product inputs: steel, plastic, and glass. Building engines only requires a source of steel, however, making steel requires two raw materials: coal and iron ore. The third and final product input, wheel & tire, requires steel and rubber. As you can see, your foray into the automobile industry is quite complex.
The second most profitable products, after cars, are desktop computers. Like cars, building desktop computers requires a significant amount of ini¬tial capital and three product inputs: steel, CPUs (silicon), and electronic components.

Building a manufacturing infrastructure able to churn out desktop computers requires you to shell out a lot of money in overhead.

Raw materials come in third in terms of profitability. There is a lot of money to be made producing raw materials, but the trick is to find customers. It takes many manufacturing units (six to ten) to make a mine profitable. Rarely, how¬ever, will a mining firm find this many customers until very late in the game. But if you are lucky to corner the market in a valuable raw material, owning a mine can become very, very profitable.

If you are looking at profit as a percentage of revenue, a pack of cigarettes is probably your best bet. After reaching a stable price, approximately seventy percent of cigarette revenue is profit, while the number runs to around fifty or sixty percent for cars and less for others (for example, thirty to forty percent for computers).The result is that cigarettes are cheap to purchase. Each year, a company that makes $20 million from cigarettes would make $120 million from cars, if these products were sold under the same marketing, retailing, and advertising conditions.

What is the Most Profitable Industry?
By far the most profitable industry is food because of its high necessity index number. Everyone needs to eat and when you are starving, you are less likely to quibble over price. As a food producer, you can set your prices high and not worry about losing customers. The food industry is not price sensitive.
Generally, food products are inexpensive to produce. Foods such as frozen meats and eggs can be sold directly from the farm. Other products such as bread and cookies require only a couple of inputs to produce.

Price Fixing
If you set your factory prices high (or even higher) compared to the stores, then you will have money come in big chunks, as you receive delivery orders.

This is good if you want to make money off of other players and you don't care if your stores lose money.
Lower factory prices mean that your revenue is received as you sell your product in stores and lets you keep a lower amount of working capital. Another factor to consider is that the price of inventory equals the sale unit cost times the number of units. This means that if you have high factory prices, you will have a deceptively high asset listing. (In other words, the factory prices will be higher than that of retail stores.)
Store prices are not very adjustable. There really isn't much of a choice when dealing with opponents. If you set your prices lower than that of your opponents, they will decrease their prices too; but if you increase prices, sel¬dom do they increase. In the end, you really needn't bother adjusting store prices, as long as you have satisfactory market share in comparison with the local competitors.
Concerning local competition, if I don't have player competition, I usually keep my product rating one to three points above them. On the average, I check prices every three to six months; this allows brand loyalty and market share to show up.

Hiring a President
When hiring a president to help run a set of firms, remember that personality and expertise means a lot. For example, a president with expertise in retailing and advertising will likely increase the desirability of your products. Accordingly, an R&D expert will be able to give you a big advantage in research.

Note that presidents also can change what they are producing, selling, or buying. Sometimes this can be costly for you over the long term. If your pres¬ident has a low tolerance for low profits, make sure that he or she is not involved in a price war, as that will disrupt your ongoing operations.

Enlight Software Home Page
This material was originally posted on the Enlight Software web page at
For the benefit of those Capitalism players without access to the Internet, it has been reprinted and modified here with kind permission from the authors.

Don't set your retail prices too low-it's enough to make their overall attrac¬tiveness five to ten points higher than that of other suppliers. Look for com¬plementary products. For example, if you are using sugar to make cola, think of making cookies too. Playing the easier scenarios is a useful way of learning the ins and outs of various industries. Make sure to set the dividend options to ask you whether you want a dividend payout-the default is no dividends.

The Vision Thing (Your Long-Range Objective)
Eventually, you will want to be the major producer of every product you sell, wherever or however you sell it. Turf wars are costly things for all sides because of the reduced revenue resulting from slashed prices and increased advertising costs. Once established, you will need to be able to defend your leadership, dri¬ving out all who are rash enough to enter your marketplace. The idea is to have such a secure position that no one is willing to attack it. If a fight looks likely, accept only those battles that are so lopsided your losses will be minimal.

To dominate a market, you must have some advantage over your potential competitors. Such long-term advantages can accrue from having:

The best "inputs." Ideally, lock them up so your competitors cannot access them. This includes natural resources like gold or timber and the most fertile farmland for growing the best crops.
The highest production technology. Be aware that you will have to balance this against the constant productivity losses of upgrading your factories.
The lowest costs. Usually this means keeping freight costs down and using vertical integration (which will be discussed later).
The highest brand recognition. This will depend partially on what brand strategy you are using.
Needless to say, check the Product Detail report when deciding on a strat¬egy. Having the highest brand recognition for a product whose brand only counts for twelve percent of its perceived value doesn't help you very much.
Because of the high cost and little immediate return, R&D will usually have to wait a few years. At first, your competitors will not yet have the benefits of their R&D; and unlike you, they have deep enough pockets to make such long-term investments. You will likely be trying to make enough short-term profit to stay in business! Forget about R&D for the moment.
Also, because there are huge economies of scale in R&D-the research of one R&D unit can be used by every manufacturing unit in your corporation, whether you have one or twenty-it makes sense to defer R&D until you have several factories making the same product.
High brand ratings may require a high initial investment in advertising, some¬thing on the order of $300 to 400 thousand per month for several months. This sounds expensive, but brand rating is quick to develop compared to other sources of advantage. Once acquired, a brand rating can deter computer
controlled corporations from selling even higher-quality versions in your stores, should such versions become available by import.
Even more significant, as the brand rating increases, you can begin to slowly adjust the price level of the product upwards and still be able to keep its overall attractiveness high.

High-quality inputs can be obtained by buying them (for example, buying gold to make jewelry) or producing them, such as crops and livestock. Note that although higher-quality gold mines cost more than lower-quality mines, all farm land is priced the same regardless of fertility. This makes highly fertile land that is well suited for a crop particularly underpriced. Note also the time it will take for your crops to come in-some crops grow in as little as a few months, others take nearly a full year. If money is tight, you might want to raise some animals for products you can se~ right away.

Capitalism, by its nature, entails a constant process of motion, of growth, of progress; no one has a vested right to a position if others can do better than he can. - Ayn Rand. Capitalism: The Unknown Ideal
Vertical integration
Because there are no long-term contacts in the game, you should aim to even¬tually control the entire chain, from raw materials to retailing. This is the best way to ensure a continued supply of high-quality inputs, raw materials, and demand for your outputs. Early on this may be too expensive, unless you con¬centrate in short production chains like food products; but it should still be a long-term goal. There are several aspects of vertical integration to consider.

You will probably want to develop product lines to take advantage of scale economies and to avoid excess capacity in your factories and mines. That is, if you are already making paper for cigarettes, and both the timber mill and the paper plant have excess capacity, you should think about other goods that use paper, such as diapers, and timber, such as beds.
Even if the paper factory is at capacity, it might be worth adding a new paper unit or perhaps even building an entire new paper factory; although, the laner option is a larger and more expensive step. Of course, if your timber plant is running at capacity (which is very unlikely), then there's little need to find other uses for timber; but a single production line of raw materials can usually service several factories without difficulty.
Another consideration when using a high brand rating strategy is the impor¬tance of owning your own retail outlets. These let you advertise four products at once and let you cut prices as well as increase ads to quickly increase sales, if you have excess capacity. However, not all of your goods need to be sold in your own stores; until you have one or two retail stores in every city, allowing outside sales of goods that are in excess supply may be helpful.
On the inputs side, never make investments that rely on buying a key input like steel from outside sources, unless you have or will soon have the cash to procure your own sources-should this become necessary.
In the early stages of the game, imported consumer goods can be the key to short-term profits (if the import quality is medium or high relative to local competence, and the import supply is stable). Imported goods allow you to make some money early and keep your department stores busy until you begin making your own products.
Eventually, however, other retailers will carry the same products in the same markets. You are then on even footing with them. You shouldn't adver¬tise the product unless you are labeling it privately because that would give your competitor the same advantage. Your costs and product quality are the same. The only thing you can do is cut its price and hope you can sustain the lowered margin long enough to drive him out of the market entirely.
Similarly, imported raw materials can be very helpful early in the game because they may let you start producing goods whose inputs aren't otherwise available. Of course, it's dangerous to build a factory to use an input whose supply might stop at any moment, so a sensible precaution is to build inven¬tories of any raw materials you are importing. (We have seen a player do very
well-in an easy scenario-with the strategy of using only imported inputs; however, we don't know if this can be successful at higher difficulty settings.)
As they say in the real estate business, "location, location, location!" Geography matters. It doesn't pay to ship goods or inputs with a high weight/cost ratio halfway across the map. Keeping down your shipping costs is the easiest and fastest way to keep your product costs low. In regard to containing shipping costs, computer controlled corporations tend to be less efficient about this than you. This is an important advantage you should exploit ruthlessly.
Plan ahead. Pick an area with a location central to your resources and your markets and concentrate there. You will be essentially building a corporate industrial park. This is true even if the area is rural, not suburban.
Centralizing as much of your production as possible allows for lower ship¬ping costs generally, and specifically lowers the cost of transporting interme¬diate finished goods like glass and textiles to the factories that use them. In addition, this makes it easier for you to handle your production details because everything is right there.
Don't forget about the importance of gaining the choice retail spots inside the city. Increased foot traffic means increased sales, and this will more than make up for the increased cost. The extra one-million dollars or so in higher land costs is a negligible premium to pay over the life of your firms. Don't for¬get that this also denies a prime retail space to your opponents!
You've already been advised not to jump into R&D at the very start. The opti¬mum time to start investing in R&D is between the third and fifth year. Take a look at the technology screen on the Corporate Details report to see what other corporations are up to. You should be aware of potential head-to-head fights so you can avoid them (usually) or prepare for them. A competitor's R&D plan is a good indication of what products it plans on producing in the near future, so it's worthwhile to check this screen occasionally anyway!
If some other corporation has a massive, three-unit five- or ten-year R&D effort in one of your current or near future products, don't panic. First check on that firm's current financial status. CEOs who like large-scale R&D efforts often incur significant losses. They either shut down some of their R&D plants or even go bankrupt. In most cases, you shouldn't be too worried. Only begin to worry if the competitor currently has huge profits and is able to fund a large R&D. If your competitor also owns retail stores in the same cities you do, it's time to hit the panic button.
R&D can be a useful way to get a leg up in a new market. It is also an impor¬tant part of defending the markets you have. A single unit, three- or five-year R&D program should be viewed as a maintenance cost for mature and dom¬inated markets with no competitors on .the horizon. Markets with identifiable competitors will need larger-scale efforts.
Bear in mind that your competitors can and do look at the R&D screen too. You can sometimes use this to your advantage. If you quickly respond to an R&D program with one of your own, you may succeed in convincing that corporation to shut its program down.
Each and every time you upgrade a factory you will be losing at least one level of productivity and capacity per unit. The greater the technological jump, the more levels your units will lose. This is a cheap-labor problem, in that you will be sacrificing productivity for quality if you have been investing in unit levels. This may not be a very good trade, especially for those production com¬ponents that contribute a relatively small percentage of the quality of the fin¬ished good.
If a unit is more than halfway to gaining another level beyond the one it will lose, you may want to stall on the upgrade to give the unit a chance to gain that extra level, where it can build up an inventory cushion in anticipation of the downgrade.

The Stock Market
The only sure investment in the stock market is your own corporate stock. You start out owning between 50 and 100 percent of your company. Each of your shares is priced at $10 initially. Ideally, you will want to own 100 percent of the shares and take the company private. Remember that you need to keep a care¬ful eye on the stock market any time you own less than 50 percent of your cor¬poration. Other CEOs will be trying to buy control of your company.
Check the market frequently. If you at first invest heavily in manufactur¬ing, retailing, or both, your stock price will drop, usually a minimum of two dollars because your corporation will be posting a loss. Use your initial per¬sonal fortune to buy up any shares that you do not now own. If you are mak¬ing some money before year end and your credit limit is high enough, borrow some money specifically to have your corporation buy back any of its out¬standing shares. Not only will this move drive the stock price up further, it will also increase your personal relative stake in the corporation.
If an investment corporation decides to purchase a large block of shares in your corporation, keep an eye on its stock price. Buy it aggressively if it is rea¬sonably priced. Investment corporations are generally flush with capital and rarely, if ever, do they go out of business. A five percent stake in an investment corporation will usually be worth ten-million dollars or more soon enough.
All these manipulations are aimed at maintaining your own personal stake in your corporation. They forestall any possibility of a hostile takeover and concentrate the wealth of the corporation in your hands. This gives you the option of selling off a small number of shares to give you cash to play with or holding it all and becoming a mega-billionaire. By limiting the amount of your money-making stock available to others, you close off a profitable avenue of investment to your competitors.

One thing that is not usually considered is the fact that the stock market is also a fast route to obtaining important R&D advantages. Because the stock market does not try to assign any value to intangible assets such as technology, corporations that are heavily involved in research may sometimes be worth far more to you t4an their paper value. The corporation has spent its capital and, possibly, its profits to build up an intangible asset, which the stock market fails to acknowledge. As the human player, it is your obligation to take the oppor¬tunity to exploit this loophole.
Strategies vary significantly among computer controlled corporations. Some perform lots of R&D, some perform very little. Some don't try to run operat¬ing companies at all and use their money to buy stocks instead. These "invest¬ment houses" are very important in the stock market portion of the game because you can buy control of them and use them as holding companies to own a majority of your corporation and other corporations.
Computer controlled corporations use a trial-and-error approach, mean¬ing that some firms are shut down soon after they're opened. In the early ver¬sions of the game, these corporations were slow to piece together complex multi-level manufacturing, the kind necessary to produce a computer or car. This has been changed somewhat, but you still may be able to gain a compet¬itive advantage by being the first to enter complex production, provided you can get the factories running soon enough-say by year number ten.
Computer controlled corporations do not organize complex industries very well either. They tend to produce the same intermediate products at each finished-good factory. The resulting structure leaves each unit running far below capacity and taking up unit slots, instead of having one plant sell engine, wheels & tires, etc. to all of the others. Use human efficiency to your advantage.

Opening Strategies
When local competition is formidable, it is often hard to break into low-¬markup, quality-based commodities like frozen meats. Here are some alter¬native commodities.

Take initial capital of twenty-five million dollars and buy an oil well and a chem¬ical mine. This gives you the ability to make eye shadow, toothpaste, shampoo, and detergent. Detergent's markups may be too low to be worthwhile, but you should be able to find one or two medium-sized cities (1.2 million in popula¬tion) where the initial local ratings on the other commodities are under forty.
Buy a department store in one of them, build two factories to produce the goods, set ads to maximum, and cut prices to the point that your goods are about five points more attractive than the locals. For eyeliner, this will require a big cut from the default thirty dollars to about twelve-to-fifteen dollars; but remember that the required inputs coupled with transport add up. to less than a buck, Ratchet up the price as the attractiveness of your goods grows, and set the training to maximum in your factories, once they hit capacity.
Now check interest rates. If the rate is five percent or less, take out another loan and buy a second store. Repeat as necessary. Note that this works even better if the seaport starts out selling oil. If it sells plastic, look for a competi¬tor to enter; the competing corporation will probably stay out of your markets at the start, though.
If oil is too expensive, buy silica and a grape farm with the idea of selling perfume and wine. This works but isn't nearly as good because you only get two goods for your department stores. Meanwhile, scout around to see what goods to go into next.
If you've followed the path suggested, you're producing glass and plas¬tic. Now you have access to the silica necessary to make electronic compo¬nents. Products like cameras, televisions, and video cameras are a logical step. If there is a steel producer around with excess capacity, you could think about producing goods such as video recorders that need steel. However, it's safer to wait until you can afford to produce steel yourself, if possible.
Any time within the three- to five-year period is a good time to start an R&D center and begin research on the next two products you plan to produce. You might also want to do "defensive research" on the lucrative eye shadow
and perfume products. If all goes well, sometime during years five to seven you should have market dominance in five or six goods, own four to six depart¬ment stores, and have a healthy annual profit.
If the stock market is enabled, other firms have probably already been nib¬bling away at your stock. At least one of these will be a holding company that has no operating units, and hence, doesn't take an operating loss. It is usually cheaper to buy control of that company and use its cash to buy control of your own corporation than it is to try to buy your corporation directly.
Moreover, the holding company may be rich enough to let you buy up a third company as well. By issuing stock in your corporation, and having your holding company buy it, you can give your corporation cash (effectively embezzling money from the holding company into your coffers). The cash can then fuel a merger with another operating corporation by year number seven or eight. This gives you new technology, new retail outlets, new resources, and often lets you eliminate redundant R&D.

Processed foods like bread, cookies, chocolate, ice cream, beer, and cola have higher markups and more brand loyalty than raw foods; yet they don't require too much of an investment.
If there is fertile warm-to-moderate farmland nearby, plant cocoa and sugar there; start a second farm in cooler terrain to grow wheat and barley. Each farm should produce for inventory to get the quality-improvement process started. This will give you enough stock on hand when your empire starts to grow.
A third farm near the city should produce milk and frozen meat. This needn't be started until the sugar crop comes in. Wheat makes flour, which makes bread. Wheat also makes cookies when it is combined with sugar and milk, and sugar is used to make ice cream; so you already have three products. If glass becomes available, bottled milk can be added, but don't buy a silica mine in the beginning. What you would like to do is have enough capital to buy an aluminum mine, which will let you produce cola (aluminum and sugar) and beer (aluminum and barley).

Appendix A
Compendium of Frequently Asked Questions

Is the Capitalism game manual not explaining something to your satisfaction? Well, if you don't know where to turn next, the following F AQ list may be helpful. Use this section as a ready reference. The chances are good that someone before you has wondered about the very same issue that has you stumped currently.

Getting Started and Retailing

At the beginning of each game, your corporation will be forced to sell foreign goods before it is able to manufacture its own products. Foreign products are imported and stored in the various seaports that dot the map. To purchase these products, simply set up a Purchase-Sales unit pair in your department store. Link the two units by double-clicking on the line between them.

Once you have set up your department store's internal product flow, double-click on the Purchase unit. Next, click on the Link Supplier button. Go to the regional map and double-click on the desired seaport. The available products are shown in the lower right-hand display window. To purchase a product, double-click on its picture. You will see the product being shipped to your store.

Select your department store. Click on the Layout Plan button to call up an internal design layout consisting of nine unassigned spaces. First, assign a Purchasing unit to any of the spaces. Next, set up a Sales unit in any adjacent space. You may set up a Purchase-Sales unit pair in any pair of unassigned spaces that can be linked. This will create a buy-sell product flow and will begin mov¬ing products through your store.

Nothing happens overnight in business. If you're expecting instantaneous results, you're in for a big disappointment. Bureaucratic red tape ensures that everything takes at least a little longer than it should. When you first link your department store's purchase unit with a product, you will experience a brief delay before the product actually appears in your store. Consider this lag to be the amount of time the product spends in transit to your stores.
Products should not spend more than a couple of days in shipment. If after several days of waiting the products still have not arrived, check your department store's internal layout to make sure that the Purchasing unit is properly connected to the source of the product.
Market Analysis
Each product in the game is given an overall rating that is used to determine how well the product will be received in the marketplace. The higher the overall rating of a product, the more likely that customers will purchase it over
another product that has a lower overall rating. In other words, higher overall ratings result in higher product sales. Customers will choose to buy products with higher overall ratings first.
A product's overall rating is determined by three principal concerns: price, quality, and brand. The importance given to each of these concerns is represented as a percentage and varies according to the type of product. For example, quality is more important to customers than is brand when it comes to buying frozen meat. On the other hand, customers are more concerned with brand than they are with quality when it comes to buying cigarettes.
Price concern is a term that describes the importance customers give to the price of a product when considering whether to buy it. If a product has high price concern, consumers are more sensitive to its price and less concerned about its quality or brand recognition. Therefore, products with a high price concern will have an overall rating based primarily on their purchase price.
Quality concern is a term that describes the importance customers give to the quality of a product when considering whether to buy it. Obviously, people always wish to purchase products that they perceive to be of high quality. But when it comes to certain products such as food, customers are willing to pay a little more to ensure they are getting the highest-quality product possible. They are mainly concerned with the quality of the product and less interested in the price or brand.
Brand concern is a term that describes the importance customers give to the brand of a product when considering whether to buy it. Corporations spend billions of dollars each year advertising their products. They want to make sure that consumers can identify with their products by memorizing their slo¬gans or singing their cute little jingles.
The idea is to develop brand recognition among the general population so that customers continue to buy your products, even if they are given a more desirable choice. Customers are more interested in buying products with your label on them than they are in buying similar products of higher quality or lower price.

NOTE Just for kicks. I wonder how many of you know what product is advertised on television as the "Quicker Picker-Upper." I'd be willing to bet that most of you do. For extra points, who markets a product described as "two all-beef patties, special sauce, lettuce, cheese, pickles, onions, on a sesame seed bun?" Give up? Here's a hint. It's the same corporation that believes "You deserve a break today." The fact that we can recall the answers to these riddles without much diffi¬culty is a testament to the power of advertising.
Every product is assigned an overall rating based on its price, quality, and brand ratings. One way to increase the overall rating of a product is by mak¬ing the product less expensive. When you reduce prices, customers perceive that they are getting more product (or a better product) for their hard-earned dollar. Undercutting the competition works, but it takes away from your cor¬porate revenue.
Quality is also important to consumers. By raising the quality of your products, you also raise their overall ratings. The best way to increase prod¬uct quality is through corporate spending on research & development. R&D programs raise the level of your manufacturing technology and allow your factories to churn out products of superior quality.
Another means of increasing products' overall ratings is through adver¬tising. By advertising your products effectively, the brand ratings of these products rise as more people become aware of them. Customers are" lured or otherwise seduced by your sljck ad campaigns to buy your products rather than somebody else's products.
Compare the overall ratings of your products to those of your competitors. If your prices are higher, your products' overall ratings are likely to be 10wer.You should consider lowering your prices because customers gravitate toward products with higher ratings.

One of the best means of attacking your competitors is by selling the very same products as they are selling, but at a lower price. The practice of under¬cutting the competition, even if it may mean taking a loss yourself, is known as initiating a price war. Price wars occur when a corporation is revenue sensitive and has left itself vulnerable to being knocked out of a particular market.
The computer controlled corporations you encounter during the course of a game represent large 'scale businesses with international connections and assets like your own. In addition to these large corporations there are ,hun¬dreds of smaller businesses operating in each city. You don't actually see these "mom-and-pop shops," but you do feel their effects.
Local businesses help determine the average price, quality, and brand rat¬ings of products sold in each city. If you let them, local competitors have the ability to become a major force in a particular market. Use the Product Summary and Product Detail reports to help you determine the share of the market controlled by local competitors.
Farming should be part of every successful corporation. You are almost guar¬anteed a market for your food items because people need to eat. Therefore, every farm should produce at least one food item that can be marketed directly to the public. Note that all these products are derived from livestock (e.g., frozen meats and eggs).
It is equally important that you begin growing various types of crops with an eye toward utilizing them in future manufacturing endeavors. For exam¬ple, cotton is necessary for the production of diapers, jeans, textiles, and toy bears. Sugar is a necessary component of products like cola, cookies, and ice cream. Rubber is a valuable product if you are considering manufacturing high-dollar products like leather shoes, sport shoes, and tires.
The best way to become a good farm manager is to become familiar with the Farmer's Guide. You can access the Farmer's Guide at any time during the game by selecting it from the Help pull-down menu. The Farmer's Guide is loaded with important information and acts as a handy reference for all your farming needs.
Remember that when running a farm, your costs are front loaded, that is, you will be shelling out a lot of money (while the crops cycle through their growing season) before you see a nickel of revenue. Be sure that you are able financially to sustain the farm while the crops are still in the ground. One way of doing this is to set aside room on your farm for livestock production. Livestock can be processed into food products and sold to customers immediately.
Simply put, they don't. Only crops are affected by environmental factors. This means you can put a livestock ranch in the middle of a desert (i.e., an area of the map with no water resources) and suffer no ill effects. Likewise, hot or cold extremes do not affect livestock production. You can raise chick¬ens equally well anywhere on the map. Therefore, position your farms according to the type of crops you wish to grow. Don't worry about the ani¬mals, they will be fine.
Setting up the infrastructure to manufacture and market a new product is an expensive proposition. So before you sink millions into a factory that makes wool sweaters, make sure that there is already a demand for the wool sweaters you intend to produce. After all, in the final analysis your corporation is in business to make money, not sweaters.
The most important thing you should do is analyze the prospective mar¬ketplace. Take note of the size of the overall market (i.e., the number of peo¬ple served) and the pool of potential customers (i.e., the likely number of products sold). Next, note the competition. Are other corporations selling similar products to this market already, or will there only be local competitors to worry about? You can accomplish your research quickly and easily by look¬ing over the Product Summary and Product Detail reports.
Being aware of the laws of supply and demand is basic to any real under¬standing of capitalism as an economic model. Simple concepts explain it best: Demand for a product goes up as the supply goes down. As demand increases so does the price and the likelihood of the product being sold. As the supply of a product increases, demand for it decreases.
Examine each of your product's supply and demand lines. If the blue supply line is longer than the red demand line, the supply of the product is greater than the demand for the product. This situation will eventually cause your inventory of the item to rise and idle your workers. To fix this problem, you will have to cut back on production or increase the demand.
Conversely, if the red demand line is longer than the blue supply line, this indicates that your corporation is unable to supply enough of a particular product to meet the demand. People are lined up waiting to buy your prod¬uct, and there's just not enough to go around. In this situation, immediately take steps to increase production of the product. Any increase in production will be immediately turned into revenue.
Becoming a good factory operator is difficult indeed. Running factories is far more complex than running simple farms. They have more moving parts and, thus, more things to worry about and have go wrong. Here are a few tips, however.
First and foremost, know the marketplace. Do your market research before you get into the business of making a new product. Pay close attention to the supply-and-demand dynamic, and set up your internal factory struc¬ture accordingly. Try to fit your factory into a larger corporate plan. Set up vertical monopolies wherever possible. Finally, make good use of both the Manager's Guide and the Manufacturing Guide; both options are found on the Help pull-down menu.
First of all, why would you not want to sell products to other corporations? A sale is a sale is a sale! Usually, you will have more products to sell than cus¬tomers. Having other corporations purchase your products is generally a good thing. It helps cut down on the amount of unsold product accumulat¬ing in your Inventory units.
Still, there will be times when your corporate strategy calls for being the sole producer and distributor of a product. In this case, go to the factory pro¬ducing the product in question. Set the product to Internal Sale only. This will prevent outside corporations from purchasing the product from that factory. Note, however, that setting the product to Internal Sale only does not get rid of corporations that are currently purchasing the product.
Once outside corporations begin purchasing a product from your factory, it is too late to set the product to Internal Sale only. The only way to get rid of these links, once they are established, is to make the product unattractive. This will cause the outside corporations to break the link themselves.
The best way to make a product unattractive is by raising the price. Set your selling price as high as you dare. Then just sit back and watch your com¬petitors suddenly lose interest in your product! They will get tired of paying $350 for a wool sweater soon enough.
Be patient, there will be some lag time before the corporations realize what you have done: But once all the links to outside corporations are broken, reset the product to Internal Sale only, and reduce the selling price as desired.
Brand and Advertising
Many players voice this complaint. The advertising dynamic is a difficult con¬cept to grasp initially. But it's not necessary to understand everything right away. To help get you started, concentrate on the key features and forget the rest.
When advertising your products, the two most important numbers to consider are the percentages that represent Rating Points and Daily Frequency. These figures are shown in the advertising unit's information box and are denoted by the letters "R" and "F,n respectively.
Rating Points tell you the size of a medium's audience. Always try to select a TV station or a newspaper publisher with a high percentage that represents Rating Points. Daily Frequency is the number of times a target audience is exposed to an advertisement in a single day. If you increase your advertising spending, you get a higher percentage that represents Daily Frequency.

The brand rating of a product is determined by its brand awareness and brand loyalty. Advertising a product increases brand awareness but not brand loyalty.
Brand loyalty is affected by brand awareness, product quality, and brand scope. Increased brand loyalty is generated by customer satisfaction with price and quality of a product or product line. Frequent use of the product will further increase loyalty.
Brand awareness is a numerical quantification of the consumer's knowledge of your products. Obviously, people cannot buy your products unless they have heard of them. As awareness of your brands increases, so does the pool of potential customers.
There are three types of brand strategies available to your corporation: Corporate Brand, Range Brand, and Unique Brand. You as CEO and Chairman must select one. It is best to make your selection at the beginning of the game. Changing strategies once the game is underway may lead to con¬fusion and a loss of advertising momentum. In short, choose a strategy before the game begins and stick to it. If for some reason you do need to change your corporate strategy, call up the Corporation Detail report, access the brand section, and make your strategy change accordingly.

Brand scope refers to the manner in which your advertising dollar is spread amongst your products. If you are using a Unique Brand strategy, the scope of your advertising is limited to the individual product only. However, if you are exercising a Range Brand or Corporate Brand strategy, the scope of your advertising overlaps and covers multiple products.

No. Advertising units always remain at a unit level of one
Research and Development

Linking R&D units creates an R&D team. All units that are part of a team should connect to a single R&D unit. This R&D unit is known as the program leader. The larger the team, the greater the increase in production technology that is achieved by the R&D program the team is conducting.
Note that you must link the individual R&D units prior to the initiation of a program. You cannot link additional units to an R&D team once a pro¬gram is under way.
To initiate an R&D program, pick a single R&D unit to act as the R&D pro¬gram leader. The program leader should have connections to all other R&D units in the team. Click the R&D Technology button for the lead unit of the team. Then select a product to research and a program length.
When an R&D project is complete, an Event Tracker button appears on the bottom part of the screen, directly below the Product Report button. If you click on the Event Tracker button, you are immediately taken to the corre¬sponding R&D program leader. Here you can decide whether to apply the results of the program or wait until some future time.
Always try to research a product before setting up a factory to manufacture it. Time your research programs so that they conclude right about the time your factory goes on line. By following this strategy, you can launch new products with superior quality and seize market share from your competitors.
R&D is expensive. Setting up an R&D center and staffing it with R&D units can run into millions of dollars, even before the first beaker is broken. Therefore, your corporation should not invest in R&D until it has sufficient cash to spare. This usually won't occur for several years. When you are ready, your initial investment should be modest, certainly not in more than a half¬dozen R&D unit.

Raw Materials Production

Mines, logging camps, and oil wells are long-term investments. In the begin¬ning they barely break even. However, as more factories begin to buy raw materials from them, their revenues and profits will increase. One mine can go a long way. There is no benefit to owning more than one of each type of raw-materials producer. There simply isn't enough business to go around.

Set a reasonable price for your raw materials. You will need to attract other cor¬porations as customers because you cannot generate enough business inter¬nally to make owning a mine profitable. Once you have a sizable customer base, it will give your corporation a constant income source because competi¬tion in the raw-materials market is much less than in the consumer market.

Stock Market

Although it may sound simplistic, the best strategy for making money in the stock market is to buy low and sell high. In other words, watch the changing fortunes of the competing corporations closely. Sometimes you can find real bargains and acquire five or ten percent of another corporation very cheaply.
Don't be in a rush. The stock market is set up so that you can buy or sell only a maximum of five percent of that corporation's stock. Each transaction has an effect on the stock prices. Buy a large block of stock and the price of that stock will skyrocket. Sell a large block of stock and the price of that stock will take a plunge. It's best to buy or sell stocks in small blocks to minimize this effect. Space out your transactions so that the stock price reaches its for¬mer equilibrium.
When your corporation buys back its own shares, those shares are taken out of circulation. The total number of shares is reduced, and the ownership per¬centage of existing shareholders increases. This action reduces the risk of a hostile takeover. .
Buying back your own shares also has a positive effect on your corporate earnings per share. If a corporation buys back half its outstanding shares, its price-to-earnings ratio (P/E ratio) will double, given that its corporate earn¬ings stay the same. A high PIE ratio indicates a profitable corporation. Naturally the stock price of shares of a profitable corporation will rise because investors are eager to buy stock in a winner.
This is really a judgment call; there is no set answer. Ideally, you want to own 100 percent of your corporation. This way every penny in profit earned by your corporation belongs to you. You also never need to set a stock dividend because, in practical terms, this would just be a cash transfer from your cor¬poration to you. It is far better to allow your corporation to utilize this money than it is to have it sit in your private bank account. No interest is accrued on this money.
Maintaining a 100-percent stake in the corporation may be difficult. There will be times when your corporation requires large infusions of cash in order to expand its operations. A bank loan is one option, but by far the most likely source of new capital will come from selling new shares of the corpora¬tion to the public.
If you decide to go public (i.e., sell shares of stock in your corporation) you are free to sell as much as forty-nine percent of the total number of shares without concern. As long as you maintain at least fifty-one percent of the out¬standing shares, you are the majority owner and remain in undisputed con¬trol. If your ownership in the corporation falls below fifty percent, however, you run the risk of losing control of your company.
A hostile takeover is when another corporation or individual investor man¬ages to acquire fifty-one percent of your corporate stock. For example,

suppose your corporation has issued a total of one million shares of stock. As soon as 500,001 shares are concentrated in the hands of a single investor, you have lost control and have fallen victim to a hostile takeover.
It is called a hostile takeover because it is a most unfriendly act. The first thing that happens in a hostile takeover is a restructuring of management. This means the old corporate executives are replaced, which of course includes you. Congratulations, you lost your job as CEO and Chairman!

A takeover occurs when fifty-one percent of a corporation is acquired by a single investor (corporate or individual). A merger can occur when seventy¬-five percent of a corporation is acquired by a single corporate investor.
When a corporation is taken over, it comes under the control of the new majority shareholder. The new owner immediately gains the right to use that corporation's cash to make stock purchases.
When a corporation acquires a seventy-five percent stake in another cor¬poration, it is given an opportunity to merge (or combine) with it. Once a merger is executed, all of the acquired corporation's assets are transferred to the acquiring corporation. These assets include cash, firms, stock holdings, and even R&D technology.

General Play Questions
A spinner has plus (+) and minus (-) buttons to let you increase or decrease the number or value it displays on your screen. When the mouse pointer is over the appropriate button, each click of your left mouse button makes small incremental changes. To make larger incremental changes, you simply click your right mouse button.

You may clear the entire Hall of Fame by deleting the file named capital.hof from your game directory.


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