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Business Ethics ­MGT610
VU
LESSON 21
PERFECT COMPETITION
Though some agricultural markets approximate the model of the perfectly competitive free
market, in actuality there is no real example of such a market. Markets that do not have all
seven features of the perfectly free market are, therefore, correspondingly less moral.
In the capitalist sense of the word, justice is when the benefits and burdens of society are
distributed such that a person receives the value of the contribution he or she makes to an
enterprise. Perfectly competitive free markets embody this sense of justice, since the
equilibrium point is the only point at which both the buyer and seller receive the just price for a
product. Such markets also maximize the utility of buyers and sellers by leading them to use
and distribute goods with maximum efficiency.
Efficiency comes about in perfectly competitive free markets in three main ways:
1. They motivate firms to invest resources in industries with a high consumer demand and
move away from industries where demand is low.
2. They encourage firms to minimize the resources they consume to produce a commodity
and to use the most efficient technologies.
3. They distribute commodities among buyers so that they receive the most satisfying
commodities they can purchase, given what is available to them and the amount they
have to spend.
First, in a perfectly competitive market, buyers and sellers are free (by definition) to enter or
leave the market as they choose. That is, individuals are neither forced into nor prevented from
engaging in a certain business, provided they have the expertise and the financial resources
required.
Second, in the perfectly competitive free market, all exchanges are fully voluntary. That is,
participants are not forced to buy or sell anything other than what they freely and knowingly
consent to buy or sell. Third, no single seller or buyer will so dominate the market that he is
able to force the others to accept his terms or go without. In this market, industrial power is
decentralized among numerous firms so that prices and quantities are not dependent on the
whim of one or a few businesses. In short, perfectly competitive free markets embody the
negative right of freedom from coercion. Thus, they are perfectly moral in three important
respects: (a) Each continuously establishes a capitalist form of justice; (b) together they
maximize utility in the form of market efficiency; and (c) each respects certain important
negative rights of buyers and sellers. No single seller or buyer can dominate the market and
force others to accept his terms. Thus, freedom of opportunity, consent, and freedom from
coercion are all preserved under this system.
Several cautions are in order, however, when interpreting these moral features of perfectly
competitive free markets. First, perfectly competitive free markets do not establish other forms
of justice. Because they do not respond to the needs of those outside the market or those who
have little to exchange, for example, they cannot establish a justice based on needs. Second,
competitive markets maximize the utility of those who can participate in the market given the
constraints of each participant's budget. However, this does not mean that society's total utility
is necessarily maximized. Third, although free competitive markets establish certain negative
rights for those within the market, they may actually diminish the positive rights of those
outside those whose participation is minimal. Fourth, free competitive markets ignore and even
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Business Ethics ­MGT610
VU
conflict with the demands of caring. As we have seen, an ethic of care implies that people exist
in a web of interdependent relationships and should care for those who are closely related to
them. A free market system, however, operates as if individuals are completely independent of
each other and takes no account of the human relationships that may exist among them. Fifth,
free competitive markets may have a pernicious effect on people's moral character. The
competitive pressures that are present in perfectly competitive markets can lead people to
attend constantly to economic efficiency. Producers are constantly pressured to reduce their
costs and increase their profit margins. Finally, and most important, we should note that the
three values of capitalist justice, utility, and negative rights are produced by free markets only
if they embody the seven conditions that define perfect competition. If one or more of these
conditions are not present in a given real market, then the claim can no longer be made that
these three values are present.
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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