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Business Ethics MGT610

LESSON 24

OLIGOPOLIES AND PUBLIC POLICY

1. Is the offer of a payment initiated by the payer (the one who pays the money), or does

the payee (the one who receives the money) demand the payment by threatening injury

to the payer's interests? In the latter case, the payment is not a bribe but a form of

extortion. If the threatened injury is large enough, the payer may not be morally

responsible for his or her act, or the moral responsibility may at least be diminished.

2. Is the payment made to induce the payee to act in a manner that violates his or her

official sworn duty to act in the best interests of the public? Or is the payment made to

induce the payee to perform what is already his or her official duty? If the payee is

being induced to violate his or her official duty, then the payer is cooperating in an

immoral act because the payee has entered an agreement to fulfill these duties.

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.

Oligopolies and Public Policy

What should society do in the face of the high degree of market concentration in oligopolistic

industries? There are three main points of view:

First, the Do-Nothing view claims that the power of oligopolies is not as large as it appears.

Though competition within industries has declined, they maintain that competition between

industries with substitutable products has replaced it. In addition, there are "countervailing

powers" of other large corporate groups, the government, and unions that keep corporations in

check. Finally, they argue that bigger is better, especially in the current age of global

competition. Economies of scale, produced by high concentration, actually lower prices for

consumers.

Second, the antitrust view argues that prices and profits in highly concentrated industries are

higher than they should be. By breaking up large corporations into smaller units, they claim,

higher levels of competition will emerge in those industries. The result will be a decrease in

collusion, greater innovation, and lower prices. Clearly, the antitrust view is based on a number

of assumptions. J. Fred Weston has summarized the basic propositions on which this traditional

view is based:

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 percent of the industry. A high degree of concentration is

unnecessary.

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. Entry does not take place to eliminate excessive

profits.

Business Ethics MGT610

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 or other means.

The third view is the Regulation view, which can be seen as a middle ground between the

other two. Those who advocate regulation do not wish to lose the economies of scale offered by

large corporations, but they also wish to ensure that large firms do not harm the consumers.

Therefore, they suggest setting up regulatory agencies and legislation to control the activities of

large corporations. Some even suggest that the government should take over the operation of

firms where only public ownership can guarantee that they operate in the public interest.

Whichever view we take, clearly the social benefits of free markets cannot be guaranteed, and

the markets themselves cannot be morally justified, unless firms remain competitive.

Ethic & Environment

This chapter on ethics and the environment begins with some rather sobering statistics from the

World watch Institute. This includes population growth, rising temperature, falling water

tables, shrinking cropland per person, collapsing fisheries, shrinking forests, and the loss of

plant and animal species. Our environment seems to be stressed nearly to the breaking point.

The ethical and technological questions that this state of affairs raises are extremely important

and complex.

First, there are still serious disagreements about the extent of the environmental damage that

industrial technology has produced. Furthermore, there is no precise way of knowing just how

much of a threat this environmental damage will have for our future welfare. And whatever the

level of damage, we must surely sacrifice some values to halt or slow it.

To explore these issues, this chapter begins with an overview of the technical aspects of

environmental resource use. Then it moves to a discussion of the ethical basis of environmental

protection. It concludes with a consideration of our obligation to future generations and the

prospects for continued economic expansion.

The Dimensions of Pollution and Resource Depletion

Environmental damage inevitably threatens the welfare of human beings as well as plants and

animals. Threats to the environment come from two sources, pollution and resource depletion.

Pollution refers to the undesirable and unintended contamination of the environment by the

manufacture or use of commodities. Resource depletion refers to the consumption of finite or

scarce resources. In a certain sense, pollution is really a type of resource depletion because

contamination of air, water, or land diminishes their beneficial qualities.

Air pollution has been with modern society for nearly 200 years; its costs are increasing

greatly. It negatively affects agricultural yields, human health, and global temperatures. The

result is a large economic impact and a staggering effect on the quality of human life.

Global warming itself poses a difficult and frightening challenge. Global warming greenhouse

gases such as: carbon dioxide, nitrous oxide, methane, and chlorofluorocarbons, are gases that

absorb and hold heat from the sun, preventing it from escaping back into space, much like a

greenhouse absorbs and holds the sun's heat. Most scenarios concerning the effects of global

warming predict massive flooding, increase of disease, loss of plant and animal species, and

Business Ethics MGT610

expansion of deserts at the expense of agricultural land. These effects will have high human

and economic costs. However, to halt the increase of greenhouse gasses, we would have to

reduce emissions by 60% to 70%, a level that would damage the economies of countries around

the world. To halt global warming, experts say that we would need to change our lifestyles and

values drastically.

Ozone depletion is also a serious concern. Caused by the release of CFCs into the atmosphere,

ozone depletion may lead to several hundred thousand new cases of skin cancer each year and

destroy many valuable food crops. Also, ocean plankton, on which the entire ocean's food chain

depends, may be severely damaged. Even though CFC production has been nearly halted, we

can expect the gasses already released to continue damaging the ozone for the next century.

Burning fossil fuels causes acid rain and global warming. Though not as devastating as

global warming, it nevertheless is harming many fish populations and trees, corroding bridges

and buildings, and contaminating drinking water. Airborne toxins and air quality in general are

also serious concerns for human health.

Airborne Toxics are less catastrophic but highly worrisome air pollution threats; 2.4 billion

pounds of airborne toxic substances released annually into the nation's atmosphere, including

phosgene, a nerve gas used in warfare, and methyl isocyanate.

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