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Business Ethics

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Business Ethics ­MGT610
VU
LESSON 20
COMPETITION AND THE MARKET
Introduction
This chapter moves the consideration of business ethics from the morality of the economic
system in general to the morality of specific practices within our system. Given that our system
generally follows the free market model, which is based on competition; it may be surprising to
note that there are so many examples of anticompetitive practices in the U.S. today. A report on
New York Stock Exchange companies showed that 10 percent of the companies had been
involved in antitrust suits during the previous five years. A survey of major corporate
executives indicated that 60 percent of those sampled believed that many businesses engage in
price fixing.6 One study found that in a period of two years alone over sixty major firms were
prosecuted by federal agencies for anticompetitive practices. Actually, it is more than
surprising. The morality of the free market system itself is based on the idea of competition
creating a just allocation of resources and maximizing the utility of society's members. To the
extent that the market is not competitive, it loses its moral justification for existing.
To understand the nature of market competition and the ethics of anticompetitive practices, it is
helpful to examine three abstract models of the different degrees of competition in a market:
perfect competition, pure monopoly, and oligopoly.
Perfect Competition
In a perfectly free competitive market, no buyer or seller has the power to significantly affect
the price of a good. Seven features characterize such markets:
1. There are numerous buyers and sellers, none of whom has a 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, including knowledge of the prices, quantities, and quality of all goods
being bought and sold.
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 costs and benefits of producing or using the goods being exchanged are borne
entirely by those buying or selling the goods and not by any other 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.
In addition, free competitive markets require an enforceable private property system and a
system of contracts and production.
In such markets, prices rise when supply falls, inducing greater production. Thus, prices and
quantities move towards the equilibrium point, where the amount produced exactly equals the
amount buyers want to purchase. Thus, perfectly free markets satisfy three of the moral criteria:
justice, utility, and rights. That is, perfectly competitive free markets achieve a certain kind of
justice, they satisfy a certain version of utilitarianism, and they respect certain kinds of moral
rights.
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Business Ethics ­MGT610
VU
The movement towards the equilibrium point can be explained in terms of two principles: the
principle of diminishing marginal utility and the principle of increasing marginal costs.
When a buyer purchases a good, each additional item of a certain type is less satisfying than the
earlier ones. Therefore, the more goods a consumer purchases, the less he will be willing to pay
for them. The more one buys, the less one is willing to pay. On the supply side, the more units
of a good, a producer makes, the higher the average costs of making each unit. This is because
a producer will use the most productive resources to make his or her first few goods. After this
point, the producer must turn to less productive resources, which means that his costs will rise.
Since sellers and buyers meet in the same market, their respective supply and demand curves
will meet and cross at the equilibrium point.
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Table of Contents:
  1. INTRODUCTION:Business Issues
  2. INTRODUCTION (CONTD.)
  3. THEORY OF ETHICAL RELATIVISM
  4. MORAL DEVELOPMENTS AND MORAL REASONING
  5. MORAL REASONING:Arguments For and Against Business Ethics
  6. MORAL RESPONSIBILITY AND BLAME
  7. UTILITARIANISM:Utilitarianism: Weighing Social Costs and Benefits
  8. UTILITARIANISM (CONTD.):rule utilitarianism, Rights and Duties
  9. UNIVERSALIZABILITY & REVERSIBILITY:Justice and Fairness
  10. EGALITARIANS’ VIEW
  11. JOHN RAWLS' THEORY OF JUSTICE:The Ethics of Care
  12. THE ETHICS OF CARE:Integrating Utility, Rights, Justice, and Caring
  13. THE ETHICS OF CARE (CONTD.):Morality in International Contexts
  14. MORALITY IN INTERNATIONAL CONTEXTS:Free Markets and Rights: John Locke
  15. FREE MARKET & PLANNED ECONOMY:FREE TRADE THEORIES
  16. LAW OF NATURE:Theory of Absolute Advantage, Comparative Advantage
  17. FREE MARKETS AND UTILITY: ADAM SMITH:Free Trade and Utility: David Ricardo
  18. RICARDO & GLOBALIZATION:Ricardo’s Assumptions, Conclusion
  19. FREE MARKET ECONOMY:Mixed Economy, Bottom Line for Business
  20. COMPETITION AND THE MARKET:Perfect Competition
  21. PERFECT COMPETITION
  22. MONOPOLY COMPETITION:Oligopolistic Competition
  23. OLIGOPOLISTIC COMPETITION:Crowded and Mature Market
  24. OLIGOPOLIES AND PUBLIC POLICY:Ethic & Environment, Ozone depletion
  25. WORLDWATCH FIGURES:Population Year, Agriculture, Food and Land Use
  26. FORESTS AND BIODIVERSITY:The Ethics of Pollution Control
  27. THE ETHICS OF POLLUTION CONTROL:Toxic Chemicals in Teflon
  28. THE ETHICS OF POLLUTION CONTROL
  29. THE ETHICS OF POLLUTION CONTROL:Recommendations to Managers
  30. COST AND BENEFITS:Basis of social audit, Objectives of social audit
  31. COST AND BENEFITS:The Ethics of Conserving Depletable Resources
  32. COST AND BENEFITS:The Club of Rome
  33. THE ETHICS OF CONSUMER PRODUCTION AND MARKETING:DSA Comments
  34. THE ETHICS OF CONSUMER PRODUCTION AND MARKETING:Should Consumers Bear More Responsibility?
  35. THE CONTRACT VIEW OF BUSINESS' DUTIES TO CONSUMERS
  36. THE CONTRACT VIEW OF BUSINESS' DUTIES TO CONSUMERS:The Due Care Theory
  37. THE SOCIAL COSTS VIEW OF THE MANUFACTURER’S DUTIES
  38. ADVERTISING ETHICS:The Benefits of Advertising, The harm done by advertising
  39. ADVERTISING ETHICS:Basic Principles, Evidence, Remedies, Puffery
  40. ADVERTISING IN TODAY’S SOCIETY:Psychological tricks
  41. ADVERTISING IN TODAY’S SOCIETY:Criticism of Galbraith's Work
  42. ADVERTISING IN TODAY’S SOCIETY:Medal of Freedom
  43. ADVERTISING IN TODAY’S SOCIETY:GENERAL RULES, Substantiation
  44. ADVERTISING IN TODAY’S SOCIETY:Consumer Privacy, Accuracy
  45. THE ETHICS OF JOB DISCRIMINATION:Job Discrimination: Its Nature