Business Ethics

Concepts & Cases

Manuel G. Velasquez
 Chapter Six
The Ethics of Consumer
Production and Marketing
 Risks to Consumers
• Dangerous and risky products

• Deceptive selling practices

• Poorly constructed products

• Failure to honor warranties

• Deceptive and unpleasant advertising

 Market Approach to Consumer
Protection
• Safety is a commodity that should not be
mandated by government.
• Safety should instead be provided through the
market.
• In a market, sellers will provide safety if
consumers demand it.
• In a market, the price of safety and the amount
sellers provide will be determined by the costs of
providing it and the value consumers place on it.
• Government intervention in consumer markets
makes them unfair, inefficient, and coercive.
 Problems with the Market
Approach
Assumes markets are perfectly
competitive, but they are not because:
◦ Buyers do not have adequate information when
products are complex and information is costly
and hard to find.
◦ Buyers are often not rational about product risk
or probabilities and are often inconsistent.
◦ Many consumer markets are monopolies or
oligopolies.
Injuries also occur because of flaws in
design, materials, or manufacturing,
however.
In these cases, it is the manufacturer's
duty to minimize injuries.
Their expertise makes them most
knowledgeable about the safest materials
and methods of making their products.

Where does the consumers' duty end and the

manufacturer's duty to protect the consumers
begin?
 Contract View of Business
Firm’s Duties to Customer
 When a customer buys a product they enter into a
“sales contract” with the firm.
 The firm freely & knowingly agrees to give buyer a
product with certain characteristics.
 The consumer similarly agrees to pay a certain
sum of money to the firm for the product.
 The view that the relationship between a business
firm and its customers is essentially a contractual
relationship, and the firm’s moral duties to the
customer are those created by this contractual
relationship.
Duty to comply - a duty of compliance with
the terms of the contract*
Duty of disclosure - a duty of disclosure
regarding the nature of the product.
Duty not to misrepresent - a duty of true
representation of the nature of the product
and the terms of the agreement.
Duty not to coerce - a duty not to exercise
undue influence in persuading the customer
to enter into the contract.

Moral Duty to Consumers under

Contractual Theory
 Duty to comply*
• Most basic duty that a business owes its customers.
• Sturdivant's list of key types of implied claims as
concerning:
Reliability - concerns whether the product will function
as the customer has been led to expect
Service Life - concerns the length of time the product
will continue to function effectively in the manner in
which the customer has been led to understand it will
function.
Maintainability - concerns how easily the product can
be kept in operating condition and repaired (if needs
be)
Safety - concerns the degree of risk associated with
using the product.
Problems with Contractual
Theory
• Assumes makers of products deal directly
with consumers but they do not.
– Manufacturer’s advertisements do form a kind
of direct promise to consumers.
• Sellers can remove all their duties to
buyers by getting them to agree to
disclaimers of responsibility.
• Assumes consumer and seller meet as
equals, but seller has more knowledge so
consumer must rely on the seller.
 Due Care Theory of
Firm’s Duties to Customer
The view that because manufacturers are in a
more advantaged position and consumers must
rely on them, they have a duty to take special
care to ensure that consumers’ interests are not
harmed by the products that they offer them.
1. Design: to ascertain whether the design
of the product conceals any dangers.
2. Production: to insure that adequate
care is taken and quality control
exercised in the production process.
3. Information: to affix and include
labels, notices, and instructions to the
product.

Manufacturer’s Duties in Due Care

Theory
 Problems with Due Care Theory
Does not limit what producer must spend
to eliminate risk.
Does not indicate who should pay for
product injuries that cannot be foreseen.
Puts manufacturer in paternalistic position
of deciding how much risk is best for
consumers.
Social Costs View of the Manufacturer’s
Duties to Consumers
On this view, the manufacturer
should pay the costs of any injuries
sustained through the use of the
product even when the manufacturer
has taken due care in the products
design and manufacture, and in
informing customers about the risks,
and in instructing them in the proper
use, of the products
 Criticisms of the Social Costs
View
Unjust to manufacturers since compensatory justice
says one should compensate injured parties only if
the injury was foreseeable and preventable.
Falsely assumes that the social cost view prevents
accidents.
◦ Instead, it encourages consumer carelessness by relieving
them of responsibility for their injuries.
Has increased the number of successful consumer
lawsuits, which imposes heavy losses on insurance
companies and makes insurance too expensive for
small firms.
◦ Response: studies show only small increase in lawsuits and
insurance firms remain profitable.
 ADVERTISING ETHICS

Advertising is a massive multi-billion-dollar-a-year

industry whose costs are ultimately borne by consumers.
In defense of advertising it is said advertising provides a
useful communication service informing customers about
products available to them
Question: Is advertising a waste or a benefit, on balance?
Characteristics of Advertising

◦ A public communication aimed at a large social

group intended to induce members of this
audience to buy the seller’s products.
◦ It succeeds by creating a desire for the seller’s
product or a belief that a product will satisfy a
preexisting desire.
◦ Commercial advertising is sometimes defined
as a form of "information" and an advertiser as
"one who gives information."
 (1) its social effects
 (2) its effects on consumer desires,
and;
 (3) its effects on consumer beliefs.

Three topics concerning the

morality ADVERTISING
1. It degrades people's tastes and values
 With regard to tastes, much advertising is
strident, intrusive, repetitive, and vulgar: thus,
critics contend, it debases our aesthetic
sensibilities.
 Worse yet, it debases our moral values by
inculcating and reinforcing materialistic
conceptions of happiness and success.

Social Effects of Advertising

2. It encourages excessive consumption and thus
wastes valuable resources
 Advertising is a seller's cost that adds nothing
to the utility of the product.
 Production Costs: go into changing the product
development, production & improvement.
 Selling Costs: go into persuading people to buy
the product.
 Sellers costs and advertising in particular don't
add anything to the utility of the product to the
consumer.

Social Effects of Advertising

3. It helps create and sustain
monopoly and oligopoly power.
 The resources available to large
corporations give them unfair
advantages when it comes to
advertising, and thus advertising helps
consolidate monopoly and oligopoly
control of markets.

Social Effects of Advertising

It creates desires in people for the sole purpose of
absorbing industrial output, without regard for
whether it is in people's interests to consume more
of these products.
John Galbraith - distinction between physiological
desires and psychic desires.
• Advertising creates psychic desires which, unlike
physical desires, are pliable and unlimited.
– Psychic desires are created so firms can use us to absorb
their output.
– Using us this way treats us as means and not as ends and
so is unethical.

Advertising's affects on consumer

desires
 While advertising can be used to communicate truths
frequently advertising is used to hide the truth, or even
communicate falsehoods.
 Such deceptive advertising is arguably wrong on both
Kantian and utilitarian grounds.
 On Kantian grounds such advertising may be seen to
violate consumer rights to rational self-determination:
lying, furthermore, is a nonuniversalizable act.
 On Utilitarian grounds it may be said that deceptive
advertising breeds a more general mistrust of
communication, leads to wrong choices, and interferes with
the beneficial workings of market by undermining rational
agency. 

Advertising effects on consumer

beliefs.
 Requirements of Deceptive
Advertising
An author who (unethically) intends to make the audience believe what
he or she knows is false by means of an intentional act or utterance.
◦ Its authors’ moral duty not to deceive: in the case of vulnerable
audiences, such as children, this includes a duty not to exploit their
vulnerabilities. 

Media or intermediaries who communicate the false message of the

advertisement.
◦ The media’s moral duty to insure that the advertisements they transmit
are not misleading, again taking special care to insure that the
vulnerabilities of children and other impressionable audiences are not
being exploited.
 
An audience who is vulnerable to the deception and who lacks the
capacity to recognize the deceptive nature of the advertisement.
◦ Audiences - have a right not to be deceived and, in the case of the
especially vulnerable audiences, not to have their special vulnerabilities
exploited.
Right to privacy: the right of persons to
determine what, to whom, and how much
information about themselves will be
disclosed to other parties.
Psychological privacy: privacy with respect
to a person's inner life - the person's
thoughts and plans, personal beliefs and
values, feelings, and wants.
Physical privacy: privacy with respect to a
person's physical activities -

CONSUMER PRIVACY
1. Prevents others from acquiring
information about us that would expose
us to shame, ridicule, or even blackmail
2. Keeps others out of our business: leaves
room for unconventionality
3. Protects those we love from having their
beliefs about us shaken
4. Protects us from self-incrimination

Protective functions of privacy

Privacy enables intimacy: intimacy involves
sharing confidences which requires having
confidences.
privacy enables various professional relations
to exist attorney-client; doctor-patient.
Enables individuals to sustain distinct social
roles.
Enables individuals to control their own
image or self-presentation.

Enabling functions of privacy

 Balancing Right to Privacy and
Business Needs
• Is the purpose of collecting information a legitimate
business need that benefits the consumer?
• Is the information that is collected relevant to the
business need?
• Is the consumer informed the information is being
collected and the purpose?
• Did the consumer consent to the information
disclosure?
• Is the information accurate?
• Is the information secure and not disclosed to
recipients or used in ways to which the consumer
did not consent?