Chapter 6:

[The Ethics of Consumer

Production and Marketing]
Problems consumers face
A consumer faces several problems in markets:
• Dangerous and risky products
• Deceptive selling practices
• Poorly constructed products
• Failure to honour warranties
• Deceptive and unpleasant advertising
 Markets and consumer protection
• The market approach to consumer protection says that safety to
consumers can be provided efficiently through the free market.
• It refers that that neither governments nor businesspeople should intervene
in markets to require product safety. Thus, if consumers want safety then
market will provide it and The price of safety and the amount sellers will
provide is determined by the costs of providing it and the value consumers
place on it.
• We can say Consumer markets will respond efficiently and fairly to
consumer preferences if the buyers:
– Have adequate information
– Are rational utility maximizers: persons who have a well-defined and
consistent set of preferences, and know how personal choices will affect those
preferences.
– Have the other characteristics of the perfectly competitive market.
 Markets and consumer protection
• There are some objections about the market approach to consumer protection. The
problems with this approach arise because it assumes that markets are competitive.
However, this is not the case since:
• Consumers do not have adequate information about products when the products are
complex and information is costly and hard to find.
• Buyers are irrational and inconsistent when making purchase decisions. They are not
rational about the product risk or probabilities.
– underestimate the risks of common life-threatening activities, such as driving, smoking, eating fried foods, or being
injured by the products we use
– overestimate the probabilities of unlikely but memorable events such as tornadoes or attacks by grizzly
bears in national parks
– we ignore or discount important information about a product, we make broad generalizations on the
basis of small samples.
• Most consumer markets are not competitive but are instead monopolies or
oligopolies. For example, the markets for automobiles, cigarettes, air travel, soft
drinks, televisions, etc.
• A part of the responsibility for injuries on consumers lies on consumers. There is also
a part of responsibility for the manufacturer. There are three different theories about
the ethical duties of manufacturers.
1. The contract view 2. The due care view 3. The social costs view
1-The contract view
• The contract view of the business firm’s duties to its customers is the
view that the relationship between a business firm and its customers is
essentially a contractual relationship. The firm’s moral duties to the
customer are those created by this contractual relationship.
• When a consumer buys a product, the consumer voluntarily enters into a
“sales contract” with the business firm
• The contractual agreement is a free agreement that imposes duties on
both parties in the agreement. Traditional moralists have argued that
entering into a contract is subject to several secondary moral constraints:
• Both parties must have full knowledge of the nature of the agreement.
• Neither party must intentionally misrepresent the facts of the contractual
situation to the other party.
• Neither party must be forced to enter the contract under duress or undue
influence.
• So the moral duties of a business to its customers are: the basic
duty of
1. Complying with the terms of the sales contract and secondary duties.
• The firm owes its customers the duty to provide them with a product that lives up to
the claims that the firm makes about the product. The product must live up to the
claims of quality and safety made by the firm.
• The claims that a seller can make about the qualities of the product range over a
variety of areas. The product quality is defined as the degree to which product
performance meets predetermined expectations with respect to:
• Reliability: The probability that a product will function as the consumer is led to expect that
it will function.
• Service life: The period of time during which the product will function as effectively as the
consumer is led to expect it to function. sellers who know that a certain product will become
obsolete have a duty to correct any mistaken beliefs they know buyers will form concerning the
service life they may expect from the product.
• Maintainability: The ease with which the product can be repaired and kept in operating
condition. Claims of maintainability are often made in the form of an express warranty
• Product safety: The degree of risk associated with using the product. That is, a product is
safe if its attendant risks are known and judged to be “acceptable” or “reasonable” by the buyer
in view of the benefits the buyer expects to derive from using the product.
2. Disclosing the nature of the product.
• Both parties of the agreement must know what they are doing and freely choose do to it.
The seller has the duty to disclose exactly what the consumer is buying and what the
terms of the sale are. At a minimum, this means the seller has a duty to inform the buyer
of any characteristics of the product that could affect the customer’s decision to
purchase the product.
• There are some that criticize the view that sellers should provide great information to
buyers because information is costly and should therefore be treated as a product for
which consumers must pay.
• Problem with criticism is that a contract must be entered into freely and free choice
depends on knowledge, contractual transactions must be based on an open exchange of
information. If consumers had to bargain for such information, the resulting contract
would hardly be free
3. Avoiding misrepresentation.
• Free choice is an essential part of a contract between seller and buyer. Since
misrepresentation is coercive it is ethically wrong to do. Misrepresentation happens
when a seller lets the buyer believe something about the product that the seller knows is
false.
• A computer software or hardware manufacturer may market a product it knows contains
“bugs” without informing buyers of that fact, the manufacturer may write wool or silk
on material made wholly or partly of cotton
4. Avoiding the use of coercion; duress and undue influence.
• When people are under the influence of fear or emotional stress they tend to act
irrationally. The seller can take advantage of the fear or stress of a buyer to consent
an agreement. When this is the case the seller is using duress or undue influence to
coerce.
 There are some objections about the assumptions of this contractual theory:
• The theory assumes that makers of products deal directly with consumers, but they
do not. However, advertisements of manufacturers do form a kind of direct promise
to consumers.
• The second objection focuses on the fact that a contract is two-edged sword. If a
consumer can freely agree to buy a product with certain qualities he can also freely
agree to buy a product without these qualities. Sellers can remove all their duties to
buyers by getting them to agree to disclaimers of responsibility.
• The theory assumes that consumer and seller meet as equals but critics say that the
seller has more knowledge so the consumer must rely on the seller. The consumer
who purchases hundreds of different goods cannot have as much knowledge as the
manufacturer who specializes in a single product.