Business Ethics Chapter 4

Example of Principle of diminishing marginal utility

The second pizza a person eats at lunch, for example, is much less satisfying than the first one; the third will be substantially less tasty than the second; while the fourth may be positively disgusting.

horizontal merger

The unification of two or more companies that were formerly competing in the same line of business.

bribery

Many companies have secretly bribed government officials so they will purchase goods from the company and not its competitors. When a bribe takes place the bribing company becomes a monopoly

What is the equilibrium point?

Where the amount produced exactly equals the amount buyers want to purchase. Thus, perfectly free markets satisfy three of the moral criteria: justice, utility, and rights

Oligopolies can set high prices through ____________. The more highly concentrated the oligopoly, the easier it is to collude against the interests of _______, ________, and ________

explicit arrangements to restrain competition, society, economic freedom, and justice.

fraud triangle

factors that tend to lead to price-fixing

price leader (tactic agreements)

firm recognized as the industry leader in oligopoly industries for the purpose of setting prices based on levels announced by that firm.

The most common cause of oligopolistic market structure is the ___________

horizontal merger

predatory price discrimination

when a company charges different prices to different buyers for the same goods or services to run its competitor out of business.

tying agreements

when a company sells a buyer certain goods only on condition that the buyer also purchases other goods from the firm.

exclusive dealing arrangements

when a company sells to a retailer only on condition that the retailer will not purchase products from other companies and/or will not sell outside a certain geographical area.

retail price maintenance agreements

when a company sells to a retailer only on condition that they agree to charge the same set retail prices.

price-fixing

when companies agree to set prices artificially high

9 anticompetitive UNETHICAL tactics

(1) Price Fixing (2) Manipulation of Supply (3) Market Allocation (4) Bid Rigging (5) Exclusive Dealing Arrangements (6) Tying Arrangements (7) Retail Price Maintenance Agreements (8) Predatory Price Discrimination (9) Bribery

parts of the fraud triangle

(1) The pressures or strong incentives to do wrong, such as organizational pressure, peer pressure, company needs, personal incentives (2) The opportunity to do wrong, which includes the ability to carry out the wrongdoing, being presented with circumstances that allow it, low risk of detection (4) The ability to rationalize one's action by framing it as morally justified.

7 characterizations of perfectly competitive free markets

(1) There are numerous buyers and sellers, none of whom has a substantial share of the Market. (2) All buyers and sellers can freely and immediately enter or leave the market. (3) Every buyer and seller has full and perfect knowledge of what every other buyer and seller is doing, including knowledge of the prices, quantities, and quality of all goods being bought and sold. (4) The goods being sold in the market are so similar to each other that no one cares from whom each buys or sells. (5) The costs and benefits of producing or using the goods being exchanged are borne entirely by those buying or selling the goods and not by any other external parties. (6) All buyers and sellers are utility maximizers: Each tries to get as much as possible for as little as possible. (7) No external parties (such as the government) regulate the price, quantity, or quality of any of the goods being bought and sold in the market.

Do-nothing view

1.) Claims that the power of oligopolies is not as large as it appears 2.) Maintain that competition between industries with substitutable products has replaced it 3.) There are "countervailing powers" of other large corporate groups, the government, and unions that keep corporations in check 4.) Argue that bigger is better, especially in the current age of global competition

Regulation View

1.) Those who advocate regulation do not wish to lose the economies of scale offered by large corporations, but they also wish to ensure that large firms do not harm the consumers 2.) Suggest setting up regulatory agencies and legislation to control the activities of large corporations 3.) Suggest that the government should take over the operation of firms where only public ownership can guarantee that they operate in the public interest

Antitrust View

1.) argues that prices and profits in highly concentrated industries are higher than they should be 2.) Prices and profits in concentrated industries are higher than they should be 3.) Monopolists and oligopolists use unfair tactics against their competitors and suppliers

Example of principle of increasing marginal costs

A producer will use the best and most productive resources to make the first few goods and at this point, costs will indeed decline as production expands.

What is a Trust?

An alliance of previously competitive oligopolists formed to take advantage of monopoly powers.

What are the three views of the Sherman Antitrust Act?

Do-Nothing View, Antitrust view, Regulation view

What is the Sherman Antitrust Act?

Federal law passed in 1890 that prohibits competitors from getting together to reduce competition or using monopoly power to keep or expand a monopoly

bid rigging

Occurs when managers in an oligopoly market decide in advance which of them will submit the winning bid

Which market is an imperfectly competitive market?

Oligopoly

highly concentrated markets

Oligopoly markets that are dominated by a few (e.g., three to eight) large firms; include many of the largest manufacturing industries

Three degrees of free market

Perfect competition- A free market in which no buyer or seller has the power to significantly affect the prices at which goods are being exchanged. Pure Monopoly- A market in which a single firm is the only seller in the market and which new sellers are barred from entering. Oligopoly- A market shared by a relatively small number of large firms that together can exercise some influence on prices. (As many as 2-50 business)

Why does the principle of increasing marginal costs exist

Productive resources are limited.

What is the Principle of diminishing marginal utility

States that each additional item a person consumes is less satisfying than each of the earlier items the person consumed: The more we consume the less utility or satisfaction we get from consuming more

Microsoft example of a monopoly

Technically, a company must have 100% of the market to be a monopoly. With 94% of the market, however, Microsoft Office dominates the worldwide market for integrated office suite software and can thus, still be seen as a monopoly.

What is the principle of increasing marginal costs

The more units of a good a producer makes, the higher the average costs of making each unit because a producer will use the most productive resources to make his or her first few goods

Most industries are not entirely ________ ; in fact, most are dominated by a _______. These markets lie somewhere in between the _____ and the _________; the most important type of these imperfectly competitive markets is the ______.

monopolistic, few large firms, monopoly, perfectly competitive free market, oligolopy

market allocation

occurs when companies in an oligopoly divides up the market among themselves ("you get India and I get China")

What is a perfectly competitive free market

one in which no buyer or seller has the power to significantly affect the prices at which goods are being exchanged

In a monopoly, two of the seven conditions are absent:

there is only one seller, and other sellers cannot enter the market.

manipulation of supply

when a company agrees to limit production.