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Ethics Lecture Chapter6

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    Chapter 6: Consumers

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    This multimedia product and its contents are protected under copyright law. The following are prohibited by law:

    any public performance or display, including transmission of any image over a network;

    preparation of any derivative work, including the extraction, in whole or in part, of any images; any rental, lease, or lending of the program.

    Chapter Six:Consumers

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    Product SafetyBusinesss general responsibility for product

    safety: The complexity of an advanced economy

    and the necessary dependence of consumers onbusiness to satisfy their many wants increase

    businesss responsibility for product safety.

    Business Ethics

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    Product SafetyThe legal liability of manufacturers: The 1916

    MacPherson vs. Buick Motor Car case expandedthe liability of manufacturers for injuries caused

    by defective products.

    Prior to that case, consumers could recoverdamages only from the retailer of the defectiveproduct.

    TheMacPherson case replaced the oldercaveatemptor(let the buyer beware) doctrine ofconsumer-seller relationship with adue care one.

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    Product SafetyStrict product liability: TheMacPherson case still

    left the injured consumer with the burden of

    proving that the manufacturer had been negligent.Negligence is difficult to prove.

    A product might be unsafe despite the

    manufacturers having tried to exercise caution.

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    Product SafetyStrict product liability: In the 1960s, legal thinking

    became dominated by the doctrine of strictproduct liability, based on:

    Henningsen vs. Bloomfield Motors (1960).

    Greenman vs. Yuba Power Products (1963).

    This holds the manufacturer responsible forinjuries suffered as a result of defects in theproduct, regardless of whether the manufacturerwas negligent.

    Business Ethics

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    Product SafetyGovernment safety regulation: In 1972, Congress

    passed the Consumer Product Safety Act.

    It empowered the Consumer Product SafetyCommission (CPSC) to protect the public againstunreasonable risks of injury associated withconsumer products.

    The CPSC aids consumers in evaluating productsafety, develops uniform standards, gathers data,conducts research, and coordinates product safetylaws (local, state, federal) and enforcement.

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    Product SafetyEconomic costs: Safety regulations benefit

    consumers but raise the price of productscritics

    worry that the expense is not always worth it.Consumer choice: Consumers may dislike some

    mandated safety technologybut in other cases

    safety regulations may prevent individuals from

    choosing to purchase a riskier, though lessexpensive, product.

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    Product Safety Legal paternalism: The idea that the law may

    justifiably be used to restrict the freedom ofindividuals for their own good.

    (1)Some product safety affects not just consumerswho purchase products but also third parties.

    (2)In the increasingly complex consumer world, theassumption that consumers know their owninterests better than anyone else is doubtful.

    (3)Paternalistic regulation may infringe individualautonomy but bring more gain in social welfare.

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    Product SafetyHow effective is regulation? Regulatory agencies

    (FDA, CPSC) often succeed in protecting interests

    of consumers and stressing business responsibility.Regulation, however, is not always effective.

    Public opinion, media attention, pressure from

    consumer advocacy groups, and the prospect of

    class-action lawsuits are also effective in forcing

    companies to take product safety seriously.

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    Product SafetySelf-regulation: Businesses generally prefer self-

    regulation, competition, and voluntary safety

    standards set by their own industry.But self-regulation can easily subordinate

    consumer interests to profit making when the two

    goals clash.

    Under the guise of self-regulation, businesses can

    end up ignoring or minimizing their

    responsibilities to consumers.Business Ethics

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    Product Safety Automobile safety: The auto industry has a long

    and consistent history of fighting against safetyregulations. Some examples:

    (1) The industry successfully lobbied the federalgovernment to delay the requirement that cars beequipped with air bags or automatic seat belts.

    (2) In the late 1990s, the industry denied that carpassengers are at a greater risk of serious injuryor death caused by collisions with pickups orSUVS than with automobiles.

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    The Responsibilities of Business

    Protecting the consumer requires more than justobeying the law.It also requires business to:

    (1) Give safety the priority warranted by theproduct.

    (2) Abandon the misconception that accidents resultsolely from consumer misuse.

    (3) Monitor closely the manufacturing process itself.

    (4) Review the safety implications of their marketingand advertising strategies.

    (5) Provide full details about product performance.

    (6) Promptly investigate consumer complaints.Business Ethics

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    The Responsibilities of BusinessSome businesses respond quickly to suspected

    hazards. Examples of two successful companies:

    JCPenney and Burning Radios: It withdrew anentire line of defective radios, ran national ads toinform the public, and offered immediate refunds.

    Johnson Wax and Fluorocarbons: It withdrew allits aerosol fluorocarbon products worldwide afterstudies showed the released chemicals weredepleting the earths fragile ozone layer.

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    Other Areas of Business Responsibility

    Product quality: Warranties are obligations forproduct quality and reliability that sellersassume.

    There are two kinds of warranty:(1) Express: The claim that a seller explicitly states.

    (2) Implicit: The claim, implicit in any sale, that aproduct is fit for its ordinary, intended use, called

    the implied warranty ofmerchantability

    its nota promise that the product will be perfect but aguarantee that it will be of passable quality.

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    Other Areas of Business ResponsibilityPricing: For many consumers, higher prices mean

    better products, so sellers raise prices to give the

    impression of superior quality or exclusivitybuthigher prices do not always mean better quality.

    Manipulative pricing: Consumers are misled by

    prices that conceal a products true cost this

    trickery or manipulation raises moral questionsabout businesss view of itself and its role in the

    community.

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    Other Areas of Business Responsibility Price fixing: The effort to control a given market

    and conspire to force consumers to payartificially high prices. There are two kinds of

    price fixing:(1) Horizontal: Occurs when competitors agree to

    adhere to a set price schedule (not to cut pricesbelow a certain minimum, or to restrict priceadvertising or the terms of sales or discounts).

    (2) Vertical: Takes place when manufactures andretailers, as opposed to direct competitors, agreeto set prices.

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    Other Areas of Business ResponsibilityPrice gouging: A sellers exploitation of a short-

    term situation by raising prices when buyers havefew purchase options for a much-needed product.

    Thought generally viewed as unethical, there isdisagreement about what it is and whether allinstances of it are wrong.

    The question What is a fair price? is not an easyone to answerone must consider the costs ofmaterial and production, operating and marketingexpenses, profit margin, etc.

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    Other Areas of Business ResponsibilityLabeling and packaging: Business is responsible to

    provide accurate, clear, and understandable

    product information that meets consumer needs.Product labels often fail to do this.

    Package shape, terms, and quantity surcharges may also

    mislead shoppers.

    Moral conduct begins by providing consumerswith what they need to know to make informed

    product choices.

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    Deception and Unfairness in AdvertisingThe goal of advertising: Advertising provides little

    useful information about goods and services, but

    has as its goal to persuade us to buy certain ones.Deceptive techniques: Providing frank product

    information is not always the most effective way to

    sell somethingadvertisers are tempted to

    misrepresent and deceive by exploiting ambiguity,concealing facts, exaggerating, and using

    psychological appeals.

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    Deception and Unfairness in AdvertisingThe Federal Trade Commissions (FTC) role:

    Created in 1914 as an antitrust weapon, it was

    expanded to include protecting consumers againstdeceptive advertising and fraudulent practices.

    Is the FTC (or other regulatory bodies) obligated

    to protect only reasonable, intelligent consumers

    who act sensibly in the marketplace?Or should it also protect ignorant consumers who

    are careless or gullible in their purchases?Business Ethics

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    Deception and Unfairness in AdvertisingThe Federal Trade Commissions (FTC) role:

    Should the FTC use thereasonable-consumerstandard or the ignorant-consumer standard?

    Adopting theformer would entail protecting onlyreasonable people from deceptive advertisingifso, gullible consumers would be unprotected.

    Adopting the latter would mean prohibitingadvertisements that can deceive anyoneif so, theFTCs restrictions and caseload would expand.

    It now follows a modified ignorant-consumer rule.Business Ethics

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    Deception and Unfairness in AdvertisingAdvertising to children: Children are particularly

    susceptible to the exaggerations of advertising.

    Advertisers say that parents still control what gets

    purchased and what doesnt.

    Critics doubt the fairness of selling to parents byappealing to children.

    Childhood obesity: The Institute of Medicines

    2005 report, reviewing 123 research studies over 30years, showed that exposure to TV ads isassociated with obesity in children under twelve.

    Business Ethics

    Chapter 6


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