6.1 Markets and Consumer Protection Flashcards
Corporate Social Responsibility | What are the different layers? (Top to down)
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- philanthropic - be a good corporate citizen -> contribute resources to the community; improve quality of life
- ethical - be ethical; obligation to do whats right just and fair
- legal - obey the law
- economic - be profitable; the foundation upon all others rest
PELE
What are problems consumers face?
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Dangerous and risky products
Deceptive selling practices
Poorly constructed products
Failure to honor warranties
Deceptive and unpleasant advertising
Safety | Key aspects in markets and consumer protection
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4.
- COMMODITY: is a commodity not to be mandated by the government
- ENSURING: should be ensured through market mechanisms
- PRIORITY: sellers will prioritize safety in response to consumer demand within a market context
- PRICE OF SAFETY: the price and level of safety offered by sellers is influenced by the costs involved in ensuring safety and the perceived value placed on it by consumers
- INVOLVEMENT: government involvement in consumer markets can lead to perceived unfairness, inefficiency, and coercion (through restriction of freedom).
PISCE
Markets are not perfectly competitive because….
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- Buyers do not have adequate information when products are complex and
information hard to find - Buyers are often not rational about product risk or probabilities and are often inconsistent
The Contractual Theory | What are moral duties of the manufacturer?
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- Duty to comply with express and implied claims of Reliability, Service life, Maintainability, safety
- Duty of disclosure
- Duty not to misrepresent
- Duty not to coerce/force
The contractual theory | What are problems in this theory?
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- INTERMEDIARY: in reality manufacturers do not directly engage with consumers, only through adverstisements; or sales occur through intermediaries
- LIABILITY DISCLAIMERS: sellers can remove themselves of all responsibilities by having buyers agree to disclaimers of liability
- KNOWLEDGE: sellers have more knowledge and consumers have to rely on their expertise (there is no equality)
The Due Care Theory - What are a manafacturers responsibilites here?
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- RISK: design the product to minimize risks during the design process, investigate risks and consider user capabilities
- QUALITY CONTROL: eliminate defects; implement quality control measures during production, through materials and manufacturing processes
- WARNINGS: provide users safety information, and issue warnings about potential hazards (when advertising) and do not make marketing to indviduals to cannot know the associated risks
The Social Costs View: Manufacturers Responsibilities
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- BEARING IT ALL: they bear the costs of all injuries resulting from defects of their products, even if they exercised due care and the injury was not foreseeable
- INTERNALIZING EXTERNAL COSTS (PRODUCT COSTS): product related injuries are external costs that should be absorbed (internalized) as part of the products market cost, promoting utility maximization and equal distribution of costs
What are problems in the due care theory?
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- LIMIT: Does not limit what producer must spend to eliminate risk
- WHO SHOULD PAY: Does not indicate who should pay for product injuries that cannot be foreseen
- PATERNALISITC POSITION: Puts manufacturer in paternalistic position of deciding how much risk is best for consumers.
What are problems in the social costs theory?
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- UNFAIRNESS: perhaps unfair to manufacturers as compensatory justice implies compensating injured parties only for foreseeable and preventable injuries.
- CARELESSNESS: wrongly assumes that the social costs perspective reduces accidents; instead, it may encourage consumer carelessness by absolving them of responsibility for their injuries.
- LAWSUIT LOSSES:
increase in successful consumer lawsuits, imposing significant losses on insurance companies and driving up insurance costs for many firms; however, studies indicate only a marginal rise in lawsuits and continued profitability among insurance firms.
which theory bears the greatest responsibility on the consumer? which one on the manufacturer?
Contract View: highest on consumer
Due Care Theory: middle
Social Costs View: highest on manufacturer
What are some ethical considerations when it comes to advertising?
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- social effects (psychological, waste, market power)
- creation of consumer desires
- deceptive effects on beliefs
Whats some criticism to the following social aspects of adverstising:
- psychological
- Waste
- market power
- vulgar, irritating aesthetic; materialistic values; instrusive and repetitive messaging; materialistic consumption > sources of self fulfillment; idea that the product will fulfill ones basic needs
- selling costs do not add to the utility of the product and are thus a waste of resources; does not increase overall demand and only shifts consumption; decrease in demand might be beneficial for the environment
- reduces competition (monopolies and oligopolies) and raises entry barriers in a market
Creation of Consumer Desires | Criticism?
- shift in decision making power from consumers to firms, molding human desires to serve production needs
- manipulative effect?
Advertising may be more successful when…
…aligning with existingconsumer values rather than instilling new values, suggesting that it reflects societal values rather than creating them
