Chapter # 4

Ethics in Marketplace
Summary

Perfect Competition
 In a market we have a perfect competition when no single or group of buyers or sellers have
the power to high or low the price. Such kind of markets are characterized by seven
features.
 There are many buyers and sellers
 It is a free market, any buyer or seller can enter or leave market anytime they want.
 Everything is transparent, all the buyers and sellers have the knowledge of what the other
buyer or seller is doing.
 All buyers and sellers got the same goods as others, so it doesn’t matter from whom they
buy or sell.
 The costs and benefits of producing or using goods are borne entirely by the buyer or seller.
 Everyone one in market trying to sell or buy to get as much as possible for as little as
possible
 The price, quantity or quality of goods are not controlled by any external force.
 In such markets, when there is shortage of goods, prices get high. When the amount of
goods produced are exactly equal to the amount of goods buyers purchase, then prices and
quantities are moving towards equilibrium point.
 In perfectly free markets three of the moral criteria” justice, utility, and rights” are satisfied.
 In the capitalist sense of the word. Justice is when the advantage and burdens are are
distributed in such a way that everyone receives the same amount of value, to which he/she
contributed.
 The only point on which the buyer and seller both get the fair price for their product is the
point of equilibrium. This kind of markets maximize the buyer and seller usefulness by
letting them to use and distribute goods with maximum efficiency.
 In competitive free markets we can get efficiency by three main ways
 They motivate the firms to use their resources in industries where consumer demand is high
instead of using it in industries where consumer demand is low.
 They encourage the firm to use their minimum resources to produces goods by adopting
the new technologies.

 They distribute commodities among buyers such that buyers receive the most satisfying
commodities they can purchase, given what is available to them and the amount they have
to spend.

Monopoly competition
 In a monopoly, unlike perfect competition the prices are controlled by a single or by a small
group of sellers and other sellers cannot freely enter the market.
 In monopolistic markets the capitalist justice are violated by their high rates and profits
because the seller charges more than the worth of goods the buyers have to pay the unjust
high prices.
 In monopoly markets the efficiency of the system is on decline.
 In this market usually there is shortage of goods that the consumer want, this shortage
result the increase in the prices of goods than how actually they worth, as no other sellers
can enter the market, the shortage will continue with abnormally high prices.

Oligopolistic Competition
 Most industries are not all monopolistic but they are also not perfectly competitive free
markets, they lie in between them and are called oligopoly, these markets are dominated by
few large firms.
 In an oligopoly, there are few significant sellers instead of many, like monopoly, other
sellers are not free to enter the market. These types of markets are highly concentrated as
these are dominated by four to eight firms
 To restrain the competition the oligopolies can west high prices through explicit
agreements.
 The more highly concentrated the oligopoly, the easier it is to collude against the interests
of economic freedom, society and justice.
 The following list show that this practice is clearly unethical
 Price Fixing: Companies agree to set prices high artificially.
 Manipulation of Supply: when companies limit the production.
 Price Discrimination: when company charge a buyer different prices in return of same
goods and services.
 Tying Arrangements: when a company sells to retailer only if they agree to condition that
they will charge the same retail prices.
 Exclusive Dealing arrangements: when a company sells to retailer only on condition that
retailer will not buy goods from other companies and is bond to sell with a certain
geographical area.
 It is difficult to legislate against common oligopolistic price setting because they
accomplished it by some tactic agreement.
 The firms set a firm as the “Price Leader”, the firm raise their prices when the leader to do
so.
 No matter how prices are set, it results the decline in social utility when the prices are
raised artificially.
 As there is not much competition between industries producing same goods or services,
now it is replaced by the competition between industries producing substitutable products
or services.
 In addition, there are “countervailing powers” of other large corporate groups, the
government, and unions that keep corporations in check. Finally, they argue that bigger is
better, especially in the current age of global competition. Economies of scale, produced by
high concentration, actually lower prices for consumers.
 The Antitrust view suggest that in highly concentrated industries the prices and profile is
higher than they should be, to prevent this the large corporation should break into smaller
units which will bring high competition between industries, it will result the decrease in
collusion, greater innovation and will low the prices
 The Regulation view suggest that, those who advocate regulation do not wish to lose the
economies of scale offered by large corporations, but they also want to ensure that
consumers are not harmed by large firms.

Chapter # 7

Summary

Risks to Consumers
In market consumer often face the risk of

• Dangerous and risky products

• Deceptive selling practices

• Poorly constructed products

• Failure to honor warranties

• Deceptive and unpleasant advertising

Market Approach to Consumer Protection

• Safety is a commodity that should not be mandated by government, it should instead provide through
the market.

• In a market, sellers will provide safety if consumers demand it.

• In a market, the price of safety and the amount sellers provide will be determined by the costs of
providing it and the value consumers place on it.

• Government intervention in consumer markets makes them unfair, inefficient, and coercive.

Problems with the Market Approach

• Assumes markets are perfectly competitive, but they are not because:

– Buyers do not have the proper and sufficient information about the complex product and the
information is hard to fine and is costly.

– Buyers are often not sure about product risk or probabilities and are often varying.

– Many consumer markets are monopolies or oligopolies.

Contract View of Business Firm’s

Duties to Customer
• The relationship of the business firm with its customer is a contractual relationship. All the moral
duties of the firm and customers towards each other are created in this contract and both are bond to
follow it.

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Moral Duty to Consumers under Contractual Theory

• Duty to comply with express and implied claims of:

– Reliability: the product will work as the customers was told it will

– Service life: the product will work as the customer’s expectations in it period time.

– Maintainability: the product will be repaired as per conditions and in period mentioned in contract.

– Safety: the risk associated with product is already cleared to costumer

• Duty of disclosure: the seller have to disclose all the conditions and defects about product.

• Duty not to misrepresent: there will be no false statement made in contract that will affect the
product reliability or its working life

• Duty not to coerce: the superior party cannot force the other party to agree on something unwillingly.

Problems with Contractual Theory

• Assumes makers of products deal directly with consumers but they do not.

– Manufacturer’s advertisements do form a kind of direct promise to consumers.

• Sellers can remove all their duties to buyers by getting them to agree to disclaimers of responsibility.
• Assumes consumer and seller meet as equals, but seller has more knowledge so consumer must rely
on the seller.

Due Care Theory of Firm’s Duties to Customer

• As the manufacturer are consider the superior party and get more advantage, costumers rely on
them, that make them to take special care to make sure the customers interests and not compromised
by the product they are offering.

Manufacturer’s Duties in Due Care Theory

• While designing product manufacturer have to consider the following:

– Do research about its risks, mention the best and worst conditions of use

– Design it in such a way that amount of risks are minimized

– take capacities of users into account

• In production:

– use strict quality control to eliminate defects

– ensure materials and manufacturing do not add defects or risk

• In marketing:

– Provide users with information about how to use product safely

– Give warning about all the dangers can be faced

– Do not market to those unable to avoid risk

Problems with Due Care Theory

• It does not limit what kind of producer must be adopt to eliminate risk.

• Does not indicate who should pay for product injuries that cannot be foreseen.

• Puts manufacturer in paternalistic position of deciding how much risk is best for consumers.

Social Costs View of the Manufacturer’s Duties to Consumers

• The manufacturer should pay all the cost if any injury happened by the defect in product, even if the
manufacturer exercised all the care in designing, making and in marketing it.

• Product injuries costs should be considered initially as a cost of bringing the product to market, this
maximizes utility and distributes costs more fairly.

Criticisms of the Social Costs View

• It is Unjust to manufacturers since compensatory justice says that manufacturer should pay the
injured parties only if the injury was foreseeable and preventable.
• Falsely assumes that the social cost view prevents accidents instead it encourage consumer by
relieving them to responsibility for their injuries.

Criticisms of the Social Cost View

• it has increased the number of successful consumer lawsuits, which in result make insurance
companies pay a big amount, this makes insurance too expensive for small firms.

Characteristics of Advertising
A public communication aimed a large group making the member audience to buy seller’s product,
making desire in audience that this product will satisfy the preexisting desire

Criticisms of Advertising Based on Social Effects

• It debases the tastes of the public.

– Response: this criticism is not a moral criticism.

• It inculcates materialistic values.

– Response: this criticism ignores the lack of evidence that advertisements can change people’s values.

• Its costs are selling costs that, unlike production costs, do not add to the utility of products and so
waste resources.

– Response: this criticism ignores how advertising can increase consumption which is good.

• It is used by big firms to create brand loyalties which let them become monopolies or oligopolies.

– Response: This criticism ignores studies showing big monopoly or oligopoly firms do not advertise
more than little firms.

Criticisms of Advertising Based on Its Effects on Desires

• Advertising creates psychic desires so firms can use us to absorb their output, using us this way is so
unethical.

• Response: this criticism ignores studies which suggest non-subliminal advertising cannot create and
control desires in adults.

Requirements of Deceptive Advertising

• An author who (unethically) intends to make the audience believe what he/she knows is false by
means of an intentional act or utterance.

• Media or intermediaries who communicate the false message of the advertisement.

• An audience who is vulnerable to the deception and who lacks the capacity to recognize the deceptive
nature of the advertisement.
Importance of Consumer Privacy
• It is important to protect the privacy of individuals from disclosing it publically which can bring shame,
interfere is someone’s private life, hurt love ones, and lead to self-incrimination.

• Enables the confidence that develops personal relationships, the trust and confidentiality that
underlies client-professional relationships, the ability to maintain distinct social roles, and the ability to
determine how others will see us.

Chapter # 5

Ethics and the environment

Major threats to the environment are from Pollution and Resource Depletion.

Pollution: the addition of harmful substance or form of energy entering environment by human activity
such as manufacturing waste disposal, burning fossil fuels, etc.

Resource Depletion: the consumption of resources faster than it can be replenished.

Major Types of Air Pollution

Air pollution is caused by humans emitting harmful gasses in air without any proper filter system. It can
be gasses from greenhouses, automobiles gasses or using of wood or gasoline for heat etc.

• Greenhouse gases: carbon dioxide, methane, nitrous oxide. It’s caused by creating electricity or heat
by burning coal, oil, natural gas

• Ozone depleting gases: chlorofluorocarbons

• Acid rain gases: sulfur oxides.

• Airborne toxics: benzene, formaldehyde, toluene, trichloroethylene, and 329 others.

• Common air pollutants: carbon monoxide, sulfur oxides, nitrogen oxides, airborne lead, ozone,
particulates.

Major Types of Water Pollution

Major cause of Water pollution is by discharging organic and inorganic pollutants in open water like in
stream or river or sea etc.

Organic wastes are human sewage, animal wastes, oil.

Inorganic wastes are salt brines, acids, phosphates, heavy metals, asbestos, PCBs, Radioactive chemicals.
Major Types of Land Pollution
Land pollution is the deposition of soil or liquid waste materials on land surface or underground in a
manner that can pollute the soil and groundwater, major causes are toxic substances, solid wastes and
nuclear wastes

• Toxic substances are of acids, heavy metals, solvents, pesticides, herbicides, and phenols.

• Solid wastes contain residential garbage, industrial wastes, agricultural wastes, and mining wastes.

• Nuclear wastes are high level radioactive waste, transuranic, low-level radioactive waste.

Depletion of Non-Renewable Resources

Non-renewable resources such as oil, natural gas,uranium etc are being deplete at a faster rate
than they can be replenished which is an warning alarm for all the world.
• Extinction of species through destruction of natural habitats.

• Natural resources depleted at peaked rate, not exponential rate.

• Fossil fuel depletion:

– Coal in 150 years

– Natural gas in 30–40 years

– Oil between 2010 and 2040

• Mineral depletion:

– Copper and mercury in 2100

– Aluminum during 21st century

– Indium and antimony in 10 years

– Tantalum in 20–116 years.

The Ethics of Pollution Control

• Ecological Ethics = the ethical view that nonhuman parts of the environment deserve to be preserved
for their own sake, regardless of whether this benefits human beings.

– The “Last Man” Argument

• Asks us to imagine a man who is Earth’s last survivor.

• We recognize it is wrong for the last man to destroy all nonhumans.

• So we must recognize some nonhumans have intrinsic value apart from humans.
Environmental Rights
• Humans have a right to fulfill their capacities as free and rational and a livable environment is essential
to such fulfillment.

• So humans have a right to a livable environment and this right is violated by practices that destroy the
environment.

• Such environmental rights can lead to total bans on pollution even when the costs far outweigh the
benefits.

Private and Social Costs

• Private cost: the cost which an individual or company has to pay from it’s of side to participate in a
particular activity.

• Social cost: The private internal costs plus the external costs of participating in a particular economic
activity.

Markets and Pollution

• The cost of making a product contain the seller internal private cost and the external cost of pollution
which is paid by society.

• A supply curve based on all costs of making a product lies higher than one based only on sellers’
internal private costs.

– The higher supply curve crosses the demand curve at a lower quantity and a higher price than the
lower supply curve.

• When sellers’ costs include only private costs, too much is produced and price is too low.

– This lowers utility, and violates rights, and justice.

Ethical Approaches to Environmental Protection

• Ecological approach: It is the environmental collection of natural factors (physical, chemical and
biological) capable of affecting living organisms

– Nonhumans have intrinsic value

• Environmental rights approach.

– Humans have a right to a livable environment

• Market approach.

– External costs violate utility, rights, and justice;

Therefore, they should be internalized.

Internalization of the Costs of Pollution
• Absorption of external costs by the producer, who then takes them into account when determining
the price of goods.

– But this process leads to environmental injustice because the external costs of pollution are borne
largely by those who do not enjoy a net benefit from the activity that produces the pollution.

Optimal Level of Pollution Removal (Utilitarian Approach)

• Rise in cost of removing pollutants id noticed as the benefits of removal fall.

•Optimal level is a point where the paying cost is equal to the benefits.

• When the cost and benefits are not measured then the utilitarian approach fails.

• When the costs and benefits are hard to measure, the precautionary principle is used.

Precautionary Principle
• The precautionary principle is a strategy to handle the possible risks, where scientifically it’s uncertain
that how large that risk is, then the practice should be rejected until the risk level is acknowledged.

Maximum Rule
• When the risk cannot be measured, the most sensible procedure is to first assume the worst condition
and then be prepared for that worst condition.

Alternative Approaches to Pollution

• Social Ecology

– Get rid of social systems of hierarchy and domination

• Ecofeminism

– Change male pattern of dominating nature and women

• Other feminists

– Extend the ethic of care toward nature

Conservation Based on Ethics

• Rawls:

– Leave the world no worse than we found it.

• Care Ethic:

– Leave our children a world no worse than we received.

• Attfield:
– Leave the world as productive as we found it.

Sustainability

• Sustainability is dealing with environment, society and economy in such a way that we fulfil the needs
of this generation without compromising the ability of the future generation to fulfil their own needs.

• The Environmental sustainability, economic sustainability, and social sustainability are interdependent.

Environmental Sustainability
We can sustain the environment if we,

• Do not deplete the renewable resources faster than their replacement.

• Tend not to create more pollution than the environment can absorb

• Not depleting non-renewable resources faster than we find its replacements.

Economic Growth
• Schumacher

– We must abandon the goal of economic growth if we are to allow future generations to live as we do.

• Others

– We must achieve a “steady state” where births equal deaths and production equals consumption and
these remain constant at their lowest feasible level.

Club of Rome Projections

• Its Suggested that if we continued economic growth on this rate, the resource depletion will be keep
occurring and the pollution will keep on increasing until industrial output, food production and services
decline, causing catastrophic population loss sometime during the twenty first century.

Moral Questions Related to Economic Growth

• It is worrying that current economic growth policies the developed countries are consuming high rates
of energy and resources while developing nations are left to consume at low rates.