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Business Ethics

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Business Ethics ­MGT610
VU
LESSON 23
OLIGOPOLISTIC COMPETITION
Oligopolistic Competition
Oligopolies can set high prices through explicit agreements to restrain competition. The more
highly concentrated the oligopoly, the easier it is to collude against the interests of society,
economic freedom, and justice. The following list identifies practices that are clearly unethical:
1. Price Fixing - when companies agree to set prices artificially high.
2. Manipulation of Supply - when a company agrees to limit production.
3. Exclusive Dealing Arrangements - when a company sells to a retailer only on
condition that the retailer will not purchase products from other companies and/or will
not sell outside a certain geographical area.
4. Tying Arrangements - when a company sells a buyer certain goods only on condition
that the buyer also purchases other goods from the firm.
5. Retail Price Maintenance Agreements - when a company sells to a retailer only on
condition that they agree to charge the same set retail prices.
6. Price Discrimination - when a company charges different prices to different buyers for
the same goods or services.
Several industrial and organizational factors lead companies to engage in these practices:
1. Crowded and Mature Market - When large numbers of new entrants or declining
demand create overcapacity in a market, the resulting decline in revenues and profits
creates pressures on middle-level managers. They may respond by allowing,
encouraging, and even ordering their sales teams to engage in price fixing.
2. Job-Order Nature of Business - If orders are priced individually so that pricing
decisions are made frequently and at low levels of the organization, collusion among
low-level salespeople is more likely.
3. Undifferentiated Products - When the product offered by each company in an industry
is so similar to those of other companies that they must compete on price alone by
continually reducing prices, salespeople come to feel that the only way to keep prices
from collapsing is by getting together and fixing prices.
4. Culture of the Business - When an organization's salespeople feel that price fixing is a
common practice and is desired, condoned, accepted, rationalized, and even encouraged
by the organization, price fixing is more likely.
5. Personnel Practices - When managers are evaluated and rewarded solely or primarily
on the basis of profits and volume so that bonuses, commissions, advancement, and
other rewards are dependent on these objectives, they will come to believe that the
company wants them to achieve these objectives regardless of the means.
6. Pricing Decisions - When organizations are decentralized so that pricing decisions are
pushed down into the hands of a lower part of the organization, price fixing is more
likely to happen. Price decisions should be made at higher organizational levels.
7. Trade Associations - Allowing salespeople to meet with competitors in trade
association meetings will encourage them to talk about pricing and to begin to engage in
price-setting arrangements with their counterparts in competing firms.
8. Corporate Legal Staff - When legal departments fail to provide guidance to sales staff
until after a problem has occurred, price-fixing problems are more likely.
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Business Ethics ­MGT610
VU
It is difficult to legislate against many common oligopolistic price-setting practices, however,
because they are accomplished by tacit agreement. Firms may, without ever discussing it
explicitly, realize that competition is not in their collective best interests. Therefore, they may
recognize one firm as the "price leader," raising their prices in reaction when the leader decides
to do so. No matter how prices are set, however, clearly social utility declines when prices are
artificially raised.
Firms also occasionally resort to bribery, which also results in a decline in market competition.
Bribes serve as a barrier to others entering the market; the briber becomes, in effect, a
monopoly seller. To determine whether a payment is ethical, there are three relevant points to
consider:
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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