Business Ethics Ch. 6

exaggeration

making claims unsupported by evidence

defenders of advertising

see it as a necessary and desireable aspect of competition in a free-market system, a protected form of free speech, and a useful sponsor of the media, in particular, TV critics challenge all three claims

ambiguity

some ads are ambiguous, meaning they can be understood in two or more ways

manipulative pricing

sometimes consumers are misled by prices that obscure a product's true cost (Ex: 3 for the price of 2) sometimes, hidden charges and surcharges can boost the consumers actual cost significantly above the announced price (Ex: online booking charges)

Regulations: consumer choice

sometimes consumers dislike mandated safety technology safety regulations may prevent individuals from choosing to purchase a riskier, though less expensive, product preventing consumers from being able to choose a cheaper but riskier product can have both economic and ethical drawbacks: economists worry that preventing individuals from balancing safety against price is inefficient, philosophers worry about interfering with people's freedom of choice

Utilitarian arguments for strict liability

1. if they know they will be held liable for injurious defects no matter what, they will make every effort to enhance safety 2. the manufacturer is best able to bear the cost of injuries due to defects, firms raise the price of their products to cover their legal costs, this is okay, it is a reasonable way to spread the cost of injury among all consumers of the product rather than letting the cost fall on a single individual

quantity surcharges

Many retailers are able to sell "economy size" items for a higher per unit price than their smaller counterparts

gullible-consumer standard

Prohibit advertisements that might mislead someone who is ill informed and naive, it would handle a lot more cases and greatly restrict advertising...

concealment of facts

Suppress information that is unflattering to their products, neglect to mention or they distract consumers' attention away from information, knowledge of which would probably make their products less desirable

vertical price fixing

Takes place when manufactures and retailers, as opposed to direct competitors, agree to set prices.

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. manufacturers have an obligation, above and beyond any contract, to exercise due care to prevent the consumer from being injured by defective products

consumer sovereignty

The idea that consumers should and do control the market through their purchases. consumer demand shapes the production process

price gouging

a seller's exploiting a short-term situation in which buyers have few purchase options for a much-needed product by raising prices substantially

Labeling and Packaging

business also has a responsibility to provide product information that is accurate, clear, and understandable and that suffices to meet the needs of consumers. Product labels frequently fail to do this. Package shape, package terms, and quantity surcharges also sometimes mislead shoppers

Product quality

business bears a general responsibility to ensure that the quality of a product measures up to the claims made about it and to reasonable consumer expectations one way that businesses assume this responsibility is through warranties

self-regulation

businesses generally prefer self-regulation, competition, and voluntary, industry-determined safety standards can fall short: self-regulation can easily become an instrument for subordinating consumer interests to profit making when the two goals clash, businesses can end up ignoring or minimizing their responsibilities to consumers

Express Warranties

claims that sellers explicitly state ex: will require no maintenance up to 2 years

government safety regulation

consumer product safety act- empowers the consumer product safety commission (CPSC) to protect the public against unreasonable risks of injury associated with consumer products sets standards for products, bans products that present undue risk of injury, and in general policies the entire consumer-product marketing process from manufacture to final season The US regulates fewer products on grounds of safety, implicitly relying more on the tort system and on the threat of private lawsuits to protect consumers and keep corporations in line

Regulations: Economic costs

critics worry about the economic costs of safety regulations safety regulations benefit consumers but raise the price of products new safety standards add millions of dollars to the cumulative price tag of various goods Ex: recalls

pricing

for many consumers, higher prices mean better products, so manufacturers arbitrarily raise the price of a product to give the impression of superior quality or exclusivity

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

caveat emptor

old doctrine "let the buyer beware" consumers were held to the ideal of being knowledgeable, shrewd, and skeptical was repudiated by the courts because it had unrealistic assumptions regarding consumer knowledge, competence, and behavior

The Federal Trade Commission

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

psychological appeal

persuasive effort aimed primarily at emotion, not reason

reasonable consumer standard

prohibit only advertising claims that would deceive reasonable people, people who are taken in because they are more gullible or less bright than the average person would be unprotected

Product safety

the complexity of an advanced economy and the necessary dependence of consumers on business to satisfy their many wants and increase business's responsibility for product safety society must rely on the conscientious efforts of business to promote consumer safety

The responsibilities of business

when it comes to consumer safety, the moral responsibilities of business go beyond merely obeying the law (should consider both the seriousness of the injury and the frequency of the occurrence) 1. Business should give safety the priority warranted by the product. 2. Business should abandon the misconception that accidents occur exclusively as a result of product misuse and that it is thereby absolved 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.

price fixing

widely recognized as a violation of the rules of the game in the market system whose ideal is open and fair price competition

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 is not absolute liability- the product must be defective, and the consumer always has the responsibility to exercise care

puffery

the supposedly harmless use of superlatives and subjective praise in advertisements use words like best, finest, most Ex: the ultimate driving machine

weasel words

to evade or retreat from a direct or forthright statement ex: help, helps prevent, helps keep

subliminal advertising

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

implied warranties

aka merchantability Include the claim, implicit in any sale, that a product is fit for its ordinary, intended use

dependence effect

as a society becomes increasingly affluent, wants are increasingly created by the process by which they are satisfied production process is shaped by consumer demand John Kenneth Galbraith

ads directed at children

because of their susceptibility, children need special protection from being enticed and manipulated by advertising can be attributed to childhood obesity

Deceptive Techniques in Advertising

because providing frank product information is not always the most effective way to sell something, advertisers are tempted to misrepresent and deceive techniques include ambiguity, concealment of facts, exaggeration, psychological appeals

contractual relationship

is an important source of moral and legal responsibilities for the product

how effective is regulation?

many regulatory agencies have difficulty fulfilling their many responsibilities

Regulations: Legal paternalism

the law may justifiably be used to restrict the freedom of individuals for their own good three points: 1. the safety of some products or some features of products affects not only the consumer who purchases the product but third parties as well 2. in today's complex consumer world, citizens may lack the knowledge and are unable to make intelligent comparisons and safety judgements, and may find it in their collective self-interest to set minimal safety standards 3. legal paternalism may pit the values of individual freedom and autonomy against social welfare, we simply have to acknowledge that clash of values and be willing to make trade-offs