Chapter 6: Consumers

Caveat emptor

"Let the buyer beware". Sellers are not required to inform prospective buyers about the properties of the goods they sell.

Food and Drug Administration (FDA)

A federal agency charged with enforcing regulations against selling and distributing adulterated, misbranded, or hazardous food and drug products.

Consumer Product Safety Commission (CPSC)

A federal agency established to protect the health and safety of consumers in and around their homes.

Psychological appeal

A persuasive effort and primarily at emotion, not reason. e.g., An automobile ad that presents the product surrounded by people who look wealthy and successful taps into our need and desire for status.

Reasonable consumer standard

A standard based on the assumption that the government should protect consumers but also that consumers have the responsibility to be informed and rational.

Gullible-consumer standard

A standard that would require sellers to make sure that unusually naïve consumers aren't deceived from advertising.

1. Both buyer and seller understand what they are giving up and what they are receiving in return. 2. Neither buyer nor seller is compelled to enter into the exchange as a result of coercion, severely restricted alternatives, or other constraints on the ability to choose. 3. Both buyer and seller are able at the time of the exchange to make rational judgments about its costs and benefits (Holly 463).

According to Holley's theory, he says that a voluntary exchange occurs "only if" what 3 conditions are met? (Holley takes his conditions to be NECESSARY conditions for an acceptable exchange)

1. That consumption is good. 2. That more is always better. 3. The conventional wisdom argues that the consumer market is best left relatively unattended by public policy, with the exception of some special cases (e.g., dangerous products).

According to Juliet B. Schor, her essay goes against the conventional wisdom both in economics and throughout the culture more generally. What are the 3 points of conventional wisdom?

1. That consumer desires are genuinely autonomous. 2. That they produce significant satisfactions.

According to Michael J. Phillips, for Galbraith's critique to be persuasive, he had to counter the argument that America's enormous production of consumer goods is justified because people want, enjoy, and demand them. This require that he undermine at least what 2 widespread beliefs?

1. Implanting in people an intense desire for consumer goods (by socializing them to embrace consumerist values). 2. Requiring that they do productive work to get the money to buy those goods (by dictating individual purchase decisions).

According to Michael J. Phillips, for the machine to work properly, it's human components must be motivated to play their role in producing those products. This can be accomplished in what 2 ways?

1. That it plays a major role in increasing the general propensity to consume. 2. That it powerfully induces individual consumer purchase decisions.

According to Michael J. Phillips, he makes what 2 controversial assumptions about manipulative advertising?

1. Manipulative advertising works much as its critics say that it works; 2. Because consumer suspend disbelief in its claims and embrace its illusions. 3. Because they want, need, and demand those illusions to cope with human existence. 4. While nonetheless knowing on some level that those illusions indeed are illusions.

According to Michael J. Phillips, on Levitt's assumptions, however, perhaps consumers do act autonomously when they submit to manipulative advertising. If Levitt is correct, what 4 things are true?

1. The realtor's greater knowledge and expertise. 2. The much greater amount of time the realtor can devote to the customer. 3. The greater importance of the purchase of a home than the purchase of a small gift and the greater potential for harm or benefit to the buyer; and (in some cases)... 4. ...implicit or explicit claims by the retailer to be acting on behalf of perspective homebuyers (clerks in stores rarely make such claims).

According to Thomas L. Carson, his theory explains why different kinds of salespeople have different kinds of duties to their customers in what 4 ways?

1. All of us have reason to fear the hazards about us in the world; we depend on others to warn us of those hazards. Few people would survive to adulthood were it not for the warnings of others about such things as oncoming cars, live electric wires, and approaching tornadoes. No one who values their own life can honestly say that they are willing to have others fail to warn them of dangers. 2. Like everyone else, a salesperson needs correct information in order to act effectively to achieve their goals and advance their interests. They are not willing to act on the basis of false beliefs. Consequently, they are not willing to have others deceive them or lie to them about matters relevant to their decisions in the marketplace. They are not willing to have members of other professions (such as law and medicine) make it a policy to deceive them or lie to them whenever they can gain financially from doing so. 3. Salespeople have questions about the goods and services they themselves buy. They can't say that they are willing to have others evade or refuse to answer those questions. We want our questions to be answered by salespeople or else we wouldn't ask them. We are not willing to have salespeople evade or refrain from answering our questions. (Digression: Rule 3 permits salespeople to refuse to answer questions that would force them to provide information about their competitors. What should we say this? Why not say instead that salespeople are obligated to answer all questions that customers ask? The answer is as follows: A salesperson's actions affect both their customers and their employer. In applying the golden rule to this issue they can't simply ask what kind of information they would want were they in the customers position [Holley poses the question in just this way]. Rule 3 can probably be improved upon, but it is a decent first approximation. A disinterested person who is not trying to give preference to the interests of salespeople, employers, or customers could endorse 3 as a policy for salespeople to follow. We can and must recognize the legitimacy of employer's demands for loyalty. The role of being an advocate or agent for someone who is selling things is legitimate within certain bounds— almost all of us are willing to have real estate agents work for us. A rational person could consent to the idea that everyone follows principles such as Rule 3). 4. All of us are capable of being manipulated by others into doing things that harm us, especially in cases in which others are more knowledgeable than we are. No one can consent to the idea that other people or salespeople should manipulate us into doing things that harm us whenever doing so as to their own advantage. Salespeople who claim that it would be permissible for them to make it a policy to deceive customers, fail to warn them about dangers, evade their questions, or manipulate them into doing things that are harmful to them whenever doing so as advantageous to them are inconsistent because they are not willing to have others do the same to them. They must allow that 1-4 are prima facie moral duties.

According to Thomas L. Carson, the golden rule supports his theory in what 4 ways?

5. Sales people should not sell customers goods or services they have reason to think will prove to be harmful to customers or that the customers will come to regret later, without giving the customers their reasons for thinking that this is the case (This duty does not hold if the seller has good reasons to think that the customer already possesses the information in question). 6. Sales people should not sell items they know to be defective or of poor quality without alerting customers to this. This duty does not hold if the buyer can be reasonably expected to know about the poor quality of what they are buying).

According to Thomas L. Carson, what are the 2 prima facie duties of salespeople, but he is much less certain that these principles can be justified compared to the previous 4?

1. Salespeople should provide buyers with safety warnings and precautions about the goods they sell (Sometimes it is enough for salespeople to call attention to written warnings and precautions that come with the goods and services in question. These warnings are unnecessary if the buyers already understand the dangers or precautions in question). 2. Salespeople should refrain from lying and deception in their dealings with customers. As much as their knowledge and time constraints permit, salespeople should fully answer questions about the products and services they sell. They should answer questions forthrightly and not evade questions or withhold information that has been asked for (even if this makes it less likely that they will make a successful sale). Salespeople are obligated to answer questions about the goods and services they sell. However, they are justified in refusing to answer questions that require them to reveal information about what their competitors are selling. They are not obligated to answer questions about competing goods and services or give information about other sellers. 4. Salespeople should not try to "steer" customers toward purchases that they have reason to think will prove to be harmful to customers (financial harm counts) or that customers will come to regret.

According to Thomas L. Carson, what are the 4 factors that lead to a more plausible theory about the ethics of sales?

1. When time does not permit it, a salesperson cannot be morally obligated to provide all information necessary to ensure that the customer is adequately informed (all the information that a responsible person would WANT to know if they were in the buyer's position). 2. Holley's theory implies that the salesperson in a store would be obligated to inform customers that a particular piece of merchandise in their store sells for less at a competing store if they know this to be the case. 3. Holley's theory seems to yield unacceptable consequences in cases in which the buyer's alternatives are severely constrained.

According to Thomas L. Carson, what are the criticisms of Holley?

1. Consistency requires that if you think that it would be morally permissible for someone to do a certain act to another person, then you must grant that it would be morally permissible for someone to do that same act to you in relevantly similar circumstances. 2. Consistency requires that if you think that it would be morally permissible for someone to do a certain act to you in certain circumstances, then you must consent to them doing that act to you in those circumstances.

According to Thomas L. Carson, what two factors does he give as a defense of the version of the golden rule employed earlier?

1. That the seller owns the goods they are selling. 2. That the goods are "merchantable," i.e., suitable for the purposes for which they are sold (Preston 56-57).

According to the Uniform Commercial Code, any transaction carries with it what following implied warranties?

Subliminal advertising

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

Manipulative advertising (Phillips)

Advertising that tries to favorably alter consumers perceptions of the advertised product by appeals to factors other than the product's physical attributes and functional performance.

Dependence effect (Galbraith)

As a society becomes increasingly affluent, wants are increasingly created by the process by which they are satisfied.

1. Can it be justified as a conscious pricing policy? 2. Can retailers ethically remain silent about its existence?

Because quantity surcharges exploit a common consumer error, the practice raises at least what 2 moral questions?

1. Product quality. 2. Pricing. 3. Labeling and packaging.

Besides product safety, what are the three other areas of business responsibility that are equally important and are taken equally seriously by the consumer movement?

Price gouging

Better understood as a seller's exploiting a short term situation in which buyers have few purchase options for a much-needed product by raising prices substantially. New York hotels that doubled or tripled their prices in the aftermath of the September 11, 2001, attacks were guilty of this, as were oil companies, innkeepers, and merchants who took advantage of hurricane Katrina to jack up the prices.

1. Express warranties. 2. Implied warranties.

Broadly speaking, what are the two kinds of warranties?

Ambiguity

Can be understood in two or more ways. e.g., In ads for its Profile bread, Continental Baking Company implied that eating the bread would lead to weight loss, and a large number of people interpreted the ad to mean that eating Profile bread really would cause them to lose weight. The fact was that Profile had about the same number of calories per ounce as other breads. However, because Profile was sliced thinner than most other breads, each slice contained 7 fewer calories.

Express warranties

Claims that the sellers explicitly state—for example, that a product is "shrink-proof" or will require no maintenance for two years.

1. The seriousness of the injury the product can cause. 2. The frequency of occurrence.

Costs cannot be ignored as a factor in safety of course, but neither can what 2 other factors?

Federal Trade Commission (FTC)

Federal agency originally created in 1914 as an anti-trust weapon, but its mandate was expanded to include protecting consumers against deceptive advertising and fraudulent commercial practices.

1. Galbraith never shows that advertising has the power he attributed to it. 2. Critics have attacked Galabraith's assumption that the needs supposedly created by advertisers and producers are, as a result, "false" or "artificial" needs and therefore less worthy of satisfaction.

Galabraith's critics have concentrated their fire on what points?

Strict product liability

Holds that the manufacturer of a product has legal responsibility to compensate the user of that product for injuries suffered because the product's defective condition made it unreasonably dangerous, even though the manufacture has not been negligent in permitting that defect to occur.

MacPherson v. Buick Motor Car

If any of us is injured by a defective product, we can sue the manufacturer of that product.

Privity doctrine

Is based a manufacturers liability for damage caused by a defective product on the contractual relationship between the manufacturer and the purchaser. Their contractual relationship is simply the sale. But that contractual relationship is an important source of moral and legal responsibility for the producer. It obligates firms to provide customers with a product that lives up to the claims the firm makes about the product.

1. We are locked into a "cycle of work and spend." 2. We have failed to value the earth's capital. 3. Consuming has become a means to social esteem and belonging.

Juliet B. Schor identifies what 3 structural features of our economic system that have led us down a path of excessive consumerism?

Exaggeration

Making claims unsupported by evidence. For example, claims that a pain reliever provides "extra pain relief," is "50% stronger than aspirin," or is "superior to any other non-prescription pain killer on the market" contradict evidence that all analgesics are effective to the same degree.

1. That manipulative advertising has negative consequences for utility. 2. That it undermines personal autonomy. 3. That it violates Kant's categorical imperative. 4. That it weakens the personal virtue of its practitioners and victims.

Michael J. Phillips, professor emeritus of business administration at Indiana University, assesses what 4 possible attacks on manipulative advertising, each from a different ethical perspective?

Warranties

Obligations to purchasers that sellers assume.

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, or rebates. A recent example is furnished by the two dozen Mercedes-Benz dealers in New York, New Jersey, and Connecticut who conspired not to undercut one another with discounts.

Prima facie duty

One's actual duty, other things being equal; it is an actual duty in the absence of conflicting duties of greater or equal importance.

Quantity surcharges

Packaging and labeling confuses consumers as retailers are able to sell "economy size" items for a higher price than their smaller counterparts. Moral issues involved in packaging and labeling relate primarily to truth telling and consumer exploitation. For example, at 3.7 ounces the candy bar that snicker calls "The Big One" is nearly twice the size of the familiar 2.07 ounce bar, which runs about $.50. But when priced at $.99-which it was at a store visited by the Wall Street Journal—The Big One costs 11% more per ounce.

1. The safety of some products or some features of products (such as a car's tires) affects not only the consumer who purchases the product but third parties as well. 2. Anti-paternalism gains possibility from the view that individuals know their own interests better than anyone else does and they are fully informed and able to advance those interests. 3. The controversy over legal paternalism pits the values of individual freedom and autonomy against social welfare.

Paternalism is a large issue that can't be done justice here, but in regards to safety regulations, what three comments are in order?

1. She has important moral obligation such as feeding and housing her family that require her to be employed (needing money to keep one's family in an expensive house or take them to Disney World wouldn't justify violating one through four). 2. She can't find another job that would enable her to meet her obligations without violating one through four or other equally important duties.

Suppose a sales person needs to make it a policy to violate 1-4 in order to meet her sales quotas and keep her job. Would this justify her in violating 1-4? POSSIBLY. But in order for this to be the case, according to Thomas L. Carson, what 2 conditions would have to be met?

Concealment of facts

Suppress information that is unflattering to their products. they neglect to mention or they distract consumers' attention away from information, knowledge of which would probably make their products less desirable. e.g., Shell resorted to this when it advertised that its gasoline had "platformate" but neglected to mention that all other brands did too.

Vertical price fixing

Takes place with the manufactures and retailers—as opposed to direct competitors—agree to set prices. For example, a federal judge found Toys "R" Us guilty of conspiring to keep prices for Barbie, Mr. Potato Head, and other popular toys artificially high.

1. Its advocates contend that only such a policy will induce firms to bend over backwards to guarantee product safety. 2. Proponents of strict liability contend that the manufacturer is best able to bear the cost of injuries due to defects.

The argument for strict liability is basically utilitarian in what 2 ways?

Implied warranties (merchantability)

The claim, implicit in any sale, that a product is fit for its ordinary, intended use.

Due care

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

Consumer sovereignty

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

Legal paternalism

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

Puffery

The supposedly harmless use of superlatives and subjective praise in advertisements. e.g., "king of beers," "breakfast of champions", "the ultimate driving machine," etc.

FTC v. Standard Education

This case moved the FTC from the reasonable consumer to the ignorant consumer standard.

1. Businesses should give safety the priority warranted by the product. 2. Businesses should abandon the misconception that accidents occur exclusively as a result of product misuse and that it is thereby absorbed of all responsibility. 3. Business must monitor the manufacturing process itself. 4. When a product is ready to be marketed, companies should have their product safety staff review their market strategy and advertising for potential safety problems. 5. When a product reaches the marketplace, firms should make available to consumers written information about the product's performance. 6. Companies should investigate consumer complaints and do so quickly.

What are the responsibilities of business?

Weasel words

words or statements that are intentionally ambiguous or misleading. e.g., "help", "like", "virtually", "can be", "up to", "as much as", etc.