This document is a chapter outline from a business ethics class that discusses ethics in different market structures. It begins by defining perfect competition, monopoly, and oligopoly markets. It then examines why perfect competition is viewed as ethical, while monopolies and oligopolies can enable unethical behaviors like price fixing or supply manipulation. The document outlines characteristics and concepts for each market type, as well as perspectives on how to address ethical issues in imperfectly competitive markets.
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Chapter 4 power point presentation
Business Ethics 7th, Velasquez
Ethics at Workplace
This document is a chapter outline from a business ethics class that discusses ethics in different market structures. It begins by defining perfect competition, monopoly, and oligopoly markets. It then examines why perfect competition is viewed as ethical, while monopolies and oligopolies can enable unethical behaviors like price fixing or supply manipulation. The document outlines characteristics and concepts for each market type, as well as perspectives on how to address ethical issues in imperfectly competitive markets.
This document is a chapter outline from a business ethics class that discusses ethics in different market structures. It begins by defining perfect competition, monopoly, and oligopoly markets. It then examines why perfect competition is viewed as ethical, while monopolies and oligopolies can enable unethical behaviors like price fixing or supply manipulation. The document outlines characteristics and concepts for each market type, as well as perspectives on how to address ethical issues in imperfectly competitive markets.
Class: MAN3509 Business Ethics Instructor: Sudiyanti, S.E., M.Sc. Department of Management Faculty of Economics and Business Gadjah Mada University Chapter Outline 2 MAN3509 - Business Ethics | Sudiyanti, S.E., M.Sc. Why is a perfectly competitive free market said to be so desirable from an ethical point of view? What is a monopoly market and why are such markets seen as ethically questionable? How do oligopoly markets provide opportunities for anticompetitive behaviors that are ethically questionable? Can we do anything to remedy the ethical shortcomings of monopolies and oligopolies? Key Concepts 3 MAN3509 - Business Ethics | Sudiyanti, S.E., M.Sc. Perfect Competition A free market in which no buyer or seller has the power significantly affect the prices at which goods are being exchanged Pure Monopoly A market in which a single firm is the only seller in the market and which new sellers are bared from entering Oligopoly A market shared by a relatively small number of large firms that together can exercise some influence on prices Perfect Competition 4 MAN3509 - Business Ethics | Sudiyanti, S.E., M.Sc. Market Any forum in which people come together for the purpose of exchanging ownership of goods or money Characteristics of Perfectly Competitive Free Markets: 1. Numerous buyers and sellers with no substantial share of the market 2. All buyers and sellers are easy to enter or leave the market 3. Perfect Competition (cont.) 5 MAN3509 - Business Ethics | Sudiyanti, S.E., M.Sc. Characteristics of Perfectly Competitive Free Markets: 3. Every buyer and seller has perfect knowledge of the prices, quantities, and quality of all goods being bought and sold 4. The goods being sold are so similar to each other 5. The costs and benefits of producing or using the goods are borne entirely not by other external parties 6. All buyers and sellers are utility maximizers 7. No external parties regulate the price, quantity or quality Equilibrium in Perfectly Competitive Market 6 MAN3509 - Business Ethics | Sudiyanti, S.E., M.Sc. Demand Curve A line on a graph indicating the most that consumers/buyers would be willing to pay for a unit of some product when they buy different quantities of those products Supply Curve A line on a graph indicating the prices producers must charge to cover the average costs of supplying a given amount of a commodity Equilibrium in Perfectly Competitive Market (cont.) 7 MAN3509 - Business Ethics | Sudiyanti, S.E., M.Sc. Principle of Diminishing Marginal Utility Each additional item a person consumes is less satisfying than each of the earlier items the person consumed. Principle of Increasing Marginal Costs After a certain point, each additional item a seller produces costs more to produce than earlier items. Point of Equilibrium The point at which the supply and demand curves meet, so amount buyers want to buy equals amount sellers want to sell and price buyers are willing to pay equals price sellers are willing to take. Ethics and Perfectly Competitive Markets 8 MAN3509 - Business Ethics | Sudiyanti, S.E., M.Sc. Moral Outcomes of Perfectly Competitive Markets Achieve a certain kind of justice Satisfy a certain version of utilitarianism Respect certain kinds of moral rights Monopoly Competition 10 MAN3509 - Business Ethics | Sudiyanti, S.E., M.Sc. Monopoly Market Characteristics One seller High entry barriers Quantity below equilibrium Price above equilibrium and supply curve Can extract monopoly profit Monopoly Competition: Justice, Utility, and Rights 11 MAN3509 - Business Ethics | Sudiyanti, S.E., M.Sc. Ethical Weaknesses of Monopolies Violation of capitalist justice Economic inefficiency Lack of respect for negative rights Oligopolistic Competition 12 MAN3509 - Business Ethics | Sudiyanti, S.E., M.Sc. Imperfectly Competitive Markets Markets that lie somewhere on the spectrum between the two extremes of the perfectly competitive market with innumerable sellers and the pure monopoly market with only one seller. Highly Concentrated Markets Oligopoly markets that are dominated by a few large firms (e.g. 3 to 8). Oligopolistic Competition (cont.) 13 MAN3509 - Business Ethics | Sudiyanti, S.E., M.Sc. Horizontal Merger The unification of two or more companies that were formerly competing in the same line of business. Explicit Agreements 14 MAN3509 - Business Ethics | Sudiyanti, S.E., M.Sc. Price Fixing An agreement between firms to set their prices at artificially high levels. Manipulation of Supply When firms in an oligopoly industry agree to limit their production so that prices rise to levels higher than those that would result from free competition. Explicit Agreements (cont.) 15 MAN3509 - Business Ethics | Sudiyanti, S.E., M.Sc. Exclusive Dealing Arrangements When a firm sells to a retailer on condition that the retailer will not purchase any products from other companies and/or will not sell outside of a certain geographical area. Tying Arrangements When a firm sells a buyer a certain good only on condition that the buyer agrees to purchase certain other goods from the firm. Explicit Agreements (cont.) 16 MAN3509 - Business Ethics | Sudiyanti, S.E., M.Sc. Retail Price Maintenance Arrangements A manufacturer sells to retailers only on condition that they agree to charge the same set retail prices for its goods. Price Discrimination To charge different prices to different buyers for identical goods or services. Explicit Agreements (cont.) 17 MAN3509 - Business Ethics | Sudiyanti, S.E., M.Sc. Unethical Practices in Oligopoly Industries Price-fixing Manipulation of supply Exclusive dealing arrangements Tying arrangements Retail price maintenance agreements Price discrimination Tacit Agreements 18 MAN3509 - Business Ethics | Sudiyanti, S.E., M.Sc. Price Leader The firm recognized as the industry leader in oligopoly industries for the purpose of setting prices based on levels announced by that firm. Bribery 19 MAN3509 - Business Ethics | Sudiyanti, S.E., M.Sc. Some considerations in determining the ethical nature of payments used for purposes other than to shut out other competitors from a market: 1. Is the offer of a payment initiated by the payer or does the payee demand the payment by threatening injury to the payers interests? If the threatened injury is large enough, the payer may not be morally responsible for the act, or the moral responsibility may at least be diminished. Bribery (cont.) 20 MAN3509 - Business Ethics | Sudiyanti, S.E., M.Sc. 2. Is the payment made to induce the payee to act in a manner that violates the official sworn duty to act in the best interests of the public? Is the payment made to induce the payee to perform what is already an official duty? If the payee is being induced to violate official duty, then the payer is cooperating in an immoral act because the payee has entered an agreement to fulfill these duties Bribery (cont.) 21 MAN3509 - Business Ethics | Sudiyanti, S.E., M.Sc. 3. Are the nature and purpose of the payment considered ethically unobjectionable in the local culture? If a form of payment is a locally accepted public custom and there is a proportionately serious reason for making the payment, then it would appear to be ethically permissible on utilitarian grounds. 22 MAN3509 - Business Ethics | Sudiyanti, S.E., M.Sc. Bribery (cont.) Main Views on Oligopoly 23 MAN3509 - Business Ethics | Sudiyanti, S.E., M.Sc. Antitrust view Do-nothing view Regulation view Oligopolies and Public Policy 24 MAN3509 - Business Ethics | Sudiyanti, S.E., M.Sc. Trust An alliance of previously competitive oligopolists formed to take advantage of monopoly powers. The Anti-trust View 25 MAN3509 - Business Ethics | Sudiyanti, S.E., M.Sc. Assumptions: 1. If an industry is not atomistic with many small competitors, there is likely to be administrative discretion over prices 2. Concentration results in recognized interdependence among companies with no price competition in concentrated industries 3. Concentration is due mostly to mergers because the most efficient scale of operation is not more than 3 to 5% of the industry. A high degree of concentration is unnecessary. The Anti-trust View (cont.) 26 MAN3509 - Business Ethics | Sudiyanti, S.E., M.Sc. Assumptions: 4. There is a positive correlation between concentration and profitability that gives evidence of monopoly power in concentrated industries-the ability to elevate prices and the persistence of high profits. 5. Concentration is aggravated by product differentiation and advertising. Advertising is correlated with higher profits. 6. There is oligopolistic coordination by signaling through press releases of other means. The Do-Nothing View 27 MAN3509 - Business Ethics | Sudiyanti, S.E., M.Sc. 1. Although competition within industries has declined, it has been replaced by competition between industries with substitutable products. 2. The economic power of any large corporation may balanced and restrained by the countervailing power of other large corporate groups in society. 3. Markets are economically efficient even when there are as few as three significant rivals in the market (Chicago School of Anti-trust). 4. Big is good particularly in light of the globalization of business that has taken place during recent decades. The Regulation View 28 MAN3509 - Business Ethics | Sudiyanti, S.E., M.Sc. Mass production and mass distribution of goods can be carried out only by using the highly centralized accumulation of assets and personnel that large corporation makes possible.
Concentration gives large firms an economic power that allows them to fix prices and engage in other forms of behavior that are not in the public interest ensure consumers are not harmed.
The nationalization is not in the public interest unresponsive and inefficient bureaucracies. Case for Discussion 29 MAN3509 - Business Ethics | Sudiyanti, S.E., M.Sc. Nestle * Infant formula * dangerous if used with poor water * a scientific product from the rich world * irregular use is dangerous * customers with limited understanding of their interests * legal, unregulated product * boycott for some 15 years in the US and in Europe * Nestl changed, but not quite enough Big firms have a lot of power (define). Why should we allow firms to generate this power? How can we keep them from abusing their power? Sources 30 MAN3509 - Business Ethics | Sudiyanti, S.E., M.Sc. Falkenberg, Andreas W., 2008, ORG408 - Ethics and Culture, Universitetet i Agder Norway. Velasquez, Manuel G., 2011, Business Ethics: Concepts and Cases, 7th edition, NJ: Pearson Prentice Hall. www.transparency.org