Business Ethics Chapter 6 - Consumers

Quantity subcharges

"Economy sized items are sold for a higher per unit price than their smaller counterparts. Example: Snickers "The Big One" vs regular

Product labels and packages often fail to tell consumers what they need to know or even exactly what they are getting

-Event if they do it is often difficult to understand. -The FDA's labeling requirements now oblige manufacturers to provide clear nutritional information. -Labels can be misleading. Aquafina suggests that its water comes from a mountain stream

The responsibilities of a business

1. Business should give safety the priority warranted by the product - Safety is often based on cost. They ignore 2 other factors, seriousness of the injury it could cause and the frequency of the occurrence 2. Businesses should abandon the misconception that accidents occur exclusively as a result of product misuse and that they have no responsibility 3. Business must monitor the manufacturing process itself - Usually when companies outsource. They should regularly review working conditions 4. When a product is ready to be marketed, product safety staff should review their market strategy for potential safety problems - ATV's and childrens use 5. When the product reaches the marketplace, firms should make available to consumers written information about the products performance - instructions, safety features, ways of use, specific warnings 6. Companies should investigate consumer complaints quickly - Manufacturers must report potentially hazardous defects within 24 hrs

Advocates of strict liabilities

1. Only such a policy will induce firms to bend over backward to guarantee product safety. They know they will be held liable so they make every effort to enhance safety. 2. Say the manufacturer is best able to bear the cost of the injuries due to the effects

3 points about paternalism and safety regulations

1. The safety of some products affects not only the customer who purchases the product, but third parties as well. Regulating these products can be defended on non paternalistic grounds. 2. Anti-paternalism gains plausibility from the view that people know their own interests better than anyone else and they are fully informed to advance those interests 3. The controversy pits the values of individual freedom against social welfare

Psychological appeals

A deceptive technique. A persuasive effort aimed at emotion, not reason. Example: Life insurance ad shows family sad after providers death to persuade through pity and fear. Raises moral concerns because rarely do the products deliver what the ads promise

Price gouging

A seller exploiting a short-term situation in which buyers have few purchase options for a much-needed product by raising prices. Example: Oil companies and hotels during Katrina

Consumer Needs

Advertisers embellish and distort their products to make them seem like they are something we want and need. Critics say this overlooks people's real needs and wants. Example: Blue jeans won't bring you romance

Subliminal advertising

Advertising that communicates at a level beneath conscious awareness, where the vast reservoir of human motivation primarily resides

Dependence effect

As a society becomes more increasingly affluent, wants are increasingly created by the process by which they are satisfied. The same process that produces products also produces the demand

Self-Regulation

Businesses dislike regulations. They prefer self-regulation and competition but often clashes when business end up ignoring or minimizing their responsibilities to consumers

MacPherson v. Buick Motor Car

Case that expanded the liability of manufacturers for injuries caused by defected products (liability used to be on the retailer.) A wheel fell off Mac's car and the firm that he bought it from didn't actually make it

Express warranties

Claims that sellers explicitly state. Example: a product is "shrinkproof" or will require no maintence for 2 years. Include assertions about durability

Market economics

Critics say since advertisings only goal is to persuade consumers to buy, there is no reason to think it enhances well-being. They say its a waste of resources and only raises the price of the product. Defenders say its necessary for economic growth

Manipulative pricing

Deals sometime omit taxes and other fees. Examples: Shipping charges on concert tix, ATM withdrawal fees, processing fees, service fess on cellphone plans. Discount cards make people believe they got a good deal when they don't know they actually price of the product

Concealment of facts

Deceptive technique. Conceal facts that are unflattering to their product

Ambiguity

Deceptive technique; Ads that can be understood in 2 or more ways

Free speech and the media

Defenders say advertising is protected under the 1st amendment

Childhood obesity

Exposure of ads is associated with obesity in kids under 12. Coke, Mcdonalds, and Disney vow to only advertise healthy foods on tv

Ads directed at children

FTC advocates for stricter controls over ads for children. Advertisers treat kids as economic objects and aim ads at children in effort to make consumers in the future. In addition, advertisers rely on children to pester their parents to buy something. Children believe more . For example, an ad showing a kid eating cereal and cereal lifting a car after is believable for kids, not adults.

Galbraith argues that advertising encourages a preoccupation with material goods and leads us to favor private consumption at the expense of important public goods and services

His critics say 1. Galbraith never shows that advertising has the power he attributed to it. Most products fail to catch the eyes of consumers despite all the advertising. 2. The needs created by advertisers are "false" or "artificial" needs

Implied warranties

Include the claim that a product is fit for its ordinary, intended use

Exaggeration

Making claims unsupported by evidence. Example: "extra pain relief," 50% stronger than aspirin"

FTC v. Standard Education

Moved the law away from the reasonable-person standard. An encyclopedia company told customers their names had be selected for a deal that only required them to pay $69.50 for the volumes. Potential buyers were not told that they were regularly sold for the same price.

Merchantability

Not a promise that the product will be perfect, but a promise that it will have good quality suitable for the purpose it is to be used

Horizontal price fixing

Occurs when competitors agree to adhere to a set price schedule, not to cut prices below a certain minimum, or to restrict price advertising or the terms of sales, discounts, rebates. There is nothing illegal about setting the same price as competitors but the agreement is illegal.

Federal Trade Commission (FTC)

Originally created as an anti-trust weapon, but its mandate was expanded to include protecting consumers against deceptive advertising and fraudulent commercial practices

Gullible-consumer standard

Prohibits an ad that might mislead someone who is ill informed or naive

Reasonable-consumer standard

Prohibits only advertising claims that would deceive reasonable people. People who are taken in because they are gullible or less bright are unprotected

These days the FTC follows the "modified gullible-consumer standard"

Protects consumers from ads that mislead significant numbers of people, whether those people acted reasonably or not

Consumer Product Safety Commission (CPSC)

Protects the public "against unreasonable risks of injury associated with consumer products." Sets standards for products, bans products that risk injury, and policies consumer-product process from manufacturing to sale

Why are prices $9.99 not, $9.88?

Psychological. $9.99 appears lower to consumers

Food and Drug Administration (FDA)

Studies and regulates food and drug products in the US. Approval is sometimes no guarantee for safety

Consumer sovereignty

The idea that consumers should and do control the market through their purchases

Legal paternalism

The idea that the law may be justifiably be used to restrict freedom of individuals for their own good

Puffery

The supposedly harmless use of superlatives and subjective praise in advertisements Example: "best," "breakfast of champions," "most effective soap you can buy"

Weasel words

To evade or retreat from a direct scenario. Example: "help".. "help keep us young," "help fight"

Advertisers are trying to persuade people to buy their product so they sometimes lie about product information through deceptive techniques. True or False

True

Vertical Price Fixing

When manufacturers and retailers - as opposed to direct competitors- agree to set prices

Critics of Strict Liability say

its unfair. If the firm has exercised due care and taken precautions to avoid defects, they believe they should not be held liable for defects that are not its fault

Caveat empor

literally "let the buyer beware" (today associated with patent medicines and outrageously false claims

Due Care

the idea that consumers and sellers do not meet as equals and that the consumers interests are particularly vulnerable to being harmed by the manufacturer, who has knowledge and expertise the consumer does not have

Strict product liability

the manufacturer of a product has legal responsibilities to compensate the user of that product for injuries suffered because the product's defective condition made it unreasonably dangerous regardless of whether the manufacturer was negligent in permitting that defect to occur