Topic: Market and Competition

Questions:
1. From the ethical point of view, big business is always bad business. Discuss the pros
and cons of that statement
2. What kind of public policy do you think we should have with respect to business
competition? Base your answer on the arguments whether that policy will favor or
not the public welfare, or whether it will secure or not certain important rights of
consumer, or whether it ensure certain forms of justice

Definition of terms:

Market. Any forum in which people come together for the purpose of exchanging ownership
of goods or money.

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 barred from entering.

Oligopoly. A market shared by a relatively small number of large firms that together can
exercise some influence on prices.

Ethics and Perfectly Competitive Markets

Characteristics of perfect competition

1. There are numerous buyers and sellers, none of whom has substantial share of the
market
2. All buyers and sellers can freely and immediately enter or leave the market
3. Every buyer and seller has full and perfect knowledge of what every other buyer and
seller is doing
4. The goods being sold in the market are so similar to each other that no one cares
from whom each buys or sells
5. The cost and benefits of producing or using goods being exchange are borne entirely
by those buying or selling the goods not by any external parties
6. All buyers and sellers are utility maximizers: each tries to get as much as possible for
as little as possible
7. No external parties (such as the government) regulate the price, quantity or quality
of any of the goods being bought and sold in the market

Perfectly competitive markets incorporates forces that inevitably drive buyers and sellers
towards the so called point of equilibrium (the point at which the supply and demand curves
meet, so amount of buyers want to buy equals amount sellers want to sell and price buyers
are willing to pay equals price sellers are willing to take.

In doing so, they achieve three major moral values:

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 1. They lead buyers and sellers to exchange their goods in a way that is just
2. They maximize the utility of buyers and sellers by leading them to allocate, use, and
distribute their goods with perfect efficiency
3. They bring about these achievements in a way that respects buyers and sellers’ right
of free consent

Cautions in interpreting these values:

1. Perfectly competitive free markets impose no restrictions on how much wealth each
participant accumulates relative relative to the others, so they ignore egalitarian
justice and may incorporate large inequalities
2. Competitive markets maximize the utility of those who can participate in the market
given the constrains of each participant budget
3. Although free competitive markets establish certain negative rights for those within
the market, they may actually diminish the positive rights of those outside (those for
example who can not compete, no money, or not so capable)
4. It ignores and even conflicts with the demands of caring for it operates as if
individuals are completely independent
5. It may have injurious effect on peoples moral character for its participants attends
constantly to economic efficiently that maximizes individual economic well-being
and may neglect character traits associated with building close relationships to
others

What happens when some of the defining characteristics of perfect competition are absent?

Free monopoly market. Has one seller and he has a substantial (100%) share of the market
and no other sellers can enter the market

Results of free monopoly market. High prices and high profits are against capitalist justice.

Oligopolistic competition. Instead of many sellers, there are few significant sellers and can
exercise some influence on prices. (25-90% shares). Other players are not able to freely
enter the market.

The following sorts of practice in market have been identified as unethical

1. Price-fixing
2. Manipulation of supply
3. Exclusive dealing arrangement
4. Tying arrangement
5. Retail price maintenance agreement
6. Price discrimination

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Ethics and environment

1. What are the main sources of treats to the environment?

2. What ethical issues are raised by pollution from commercial and industrial
enterprise?
3. What obligations, if any, do we have to conserve our environment?

The ethics of consumer production and marketing

1. How far must manufacturers go to make their products safe?

2. Is the relationship between a business and its customers essentially a contract, or
there is more to it than that?
3. How does the fact that companies usually know more about their products than
their customers affect their duty to protect customers from injury or harm?
4. What responsibility do businesses have for customer injuries no one could
reasonably have foreseen or prevented?
5. On the whole, does advertising help or harm consumers?
6. Do companies have the duty to protect their customers privacy? Why?

Considerations when determining the ethical nature of a given advertisement

1. What does the advertiser intend the effect of the advertisement to be?
2. What are the actual effects of the advertisement on individuals and on society as a
whole?
3. Does the advertisement inform or does it also seek to persuade?
4. If it is persuasive, does it attempt to create an irrational and possible injurious
desire?
5. Is the content of advertisement truthful?
6. Does the advertisement have a tendency to mislead those whom it is directed?

Questions for discussion:

1. Who should decide (a) how much information should be provided by manufacturers,
(b) how good products should be, and (c) how truthful advertisement should be? The
government? Manufacturer? Consumer groups? Explain your views.
2. Advertising should be banned because it diminishes a consumer’s freedom of choice.
Discuss this claim.
3. Carefully examine two or more advertisement and assess the extent to which they
meet what you would consider adequate ethical standards for advertising. Defend
your standards.
4. A manufacturer of electric coffee pots recalled the pots (through newspaper
announcement) when he found that the handles would sometimes fall off without
warning and the boiling contents would spill. Only 10% of the pots were returned.
Does the manufacturer have any additional duties to those who did not return the
pots? Explain your answer.