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Business Ethics

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Business Ethics ­MGT610
VU
LESSON 36
The main objections to the contractual theory maintain that the assumptions on which the
theory is based are unrealistic. Manufacturers do not deal directly with consumers. They do
deal indirectly with them through advertisements, however, and promoters of the theory argue
that advertisements forge the indirect contractual relationship between seller and the buyer.
Another objection to the theory points out that consumer can freely agree to purchase a product
without certain qualities. Manufacturers can be released from normal contractual obligations
simply by disclaiming that the product is safe and reliable. Disclaimers can, in effect, nullify all
of the seller's contractual duties.
Finally, critics of this theory point out that the assumption that buyer and seller meet on equal
ground is false. Buyers and sellers are not equally skilled; the seller is in a much stronger
position than the buyer. Sellers only have to know their own products, while buyers need to
know about every sellers' products for every commodity they purchase.
Another objection to the theory points out those consumers can freely agree to purchase a
product without certain qualities. Manufacturers can be released from normal contractual
obligations simply by disclaiming that the product is safe and reliable. Disclaimers can, in
effect, nullify all of the seller's contractual duties.
Finally, critics of this theory point out that the assumption that buyer and seller meet on equal
ground is false. Buyers and sellers are not equally skilled; the seller is in a much stronger
position than the buyer. Sellers only have to know their own products, while buyers need to
know about every sellers' products for every commodity they purchase.
6.3 The Due Care Theory
The due care theory of the manufacturer's duties to consumers is based on the idea that
consumers and sellers do not meet as equals and the consumer's interests are particularly
vulnerable to being harmed by the manufacturer, who has a knowledge and an expertise that the
consumer lacks. Because manufacturers are in a more advantaged position, they have a duty to
take special care to ensure that the products they offer do not harm the consumers' interests.
The doctrine of caveat emptor is here replaced with a weak version of the doctrine of caveat
vendor. Let the seller take care. Because consumers must rely on the expertise of the
manufacturer, they have a duty not only to deliver a product that lives up to the express and
implied claims they make about it. They have a duty to exercise due care to prevent others from
being injured by the product, even if they explicitly disclaim such responsibility.
Due care must enter into the product's design, choice of materials and construction methods,
quality control, and warnings attached to it. Failure to exercise due care in these areas is a
breach of the manufacturer's moral duties. This theory rests on the principle that agents have a
moral duty not to harm or injure others. The principle can be defended by the ethics of care, of
course, but rule utilitarianism, Kant, and Rawls can all also be used as a solid basis for the
theory.
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Business Ethics ­MGT610
VU
Manufacturers' responsibilities to exercise due care extend to the following three areas:
1. Design - a product's design should not conceal any dangers, should incorporate all
feasible safety devices, and use adequate materials. The design should additionally be
well tested to ensure that consumers will use the product properly.
2. Production - the manufacturing process must be controlled to eliminate any
defective items, identify weaknesses, and ensure that unsafe economizing
measures are not taken.
3. Information - the firm should fix labels, notices, and instructions on the product
warning of all potential dangers involved in using or misusing the item.
Manufacturers must also take into consideration the capacities of the persons who they expect
will use the product. If the possible harmful effects of using a product are serious or if they
cannot be adequately understood without expert opinion, then sale of the product should be
carefully controlled.
There are three difficulties with the due care theory. The basic problem with it is that there is
no way to determine when one has exercised enough due care. Every product involves some
small risk; if all risks were eliminated, few if any products would be affordable. Secondly, the
theory assumes that the manufacturer can indeed discover all the risks attendant upon using a
product before it is actually used and this may not be possible. Finally, the theory is to some,
paternalistic, assuming that the manufacturer alone should make the important decisions about
the level of risk the consumer should bear. Perhaps such decisions should be left up to
consumers, who can decide for themselves whether or not they want to pay for additional safety
measures.
Key Terms
brand loyalty
The result of effective advertising campaigns on
consumers, which gives large corporations control
over a major portion of the market.
caveat emptor
"let the buyer beware."
caveat vendor
"let the seller beware."
commercial advertising
Communication between a seller and potential
buyers that is publicly addressed to a mass
audience and is intended to induce several
members of this audience to buy the seller's
products.
contractual theory (of a The view that the relationship between a business
seller's duties)
and its customers is a contractual one; the moral
duties to the customer are those created by this
contract.
disclaimer
A  statement  made  by  a  seller  explicitly
disclaiming  that  the  product  is  reliable,
serviceable, or safe.
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Business Ethics ­MGT610
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due care theory (of a the theory that, since consumers must depend on
seller's duties)
the greater expertise of the manufacturer, the
manufacturer not only has a duty to deliver a
product that lives up to the express and implied
claims about it, but also has a duty to exercise due
care to prevent others from being injured by the
product--even if the manufacturer explicitly
disclaims such responsibility.
duty not to coerce
The duty of a seller not to take advantage of
gullibility, immaturity, ignorance, or any other
factor that might reduce the buyer's ability to make
a rational choice.
duty not to misrepresent
The duty of a seller not to deliberately deceive the
buyer into thinking something about a product that
the seller knows is false.
duty of disclosure
The duty of a seller to inform the buyer of any
facts about the product that would affect the
decision to purchase it.
duty to comply
According to the contractual theory, the seller has
a duty to carry through on any implied claims he
knowingly makes about the product.
free riders
Individuals who acquire a benefit paid for by
others who desire the same benefit.
implied claim
A claim about the quality or character of a product
that is knowingly, though not explicitly, made by a
seller.
implied warranty
The  indirect  contractual  relationship  made
between a company and its customers by its
advertisements.
maintainability
The ease with which a product can be repaired and
kept in operating condition.
market
approach
to Consumer safety is seen as a good that is most
consumer protection
efficiently provided through the mechanism of the
free market whereby sellers must respond to
consumer demands.
physical privacy
Privacy with respect to a person's physical
activities.
production costs / selling With reference to advertising, production costs are
costs
the costs of the resources consumed in producing a
product; selling costs are the additional costs of
resources that do not go into changing the product
but rather are invested in persuading people to buy
it.
product safety
Implied and express claims that refer to the degree
of risk associated with using a product.
psychological privacy
Privacy with respect to a person's inner life.
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Business Ethics ­MGT610
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rational utility maximizer A person who has a well-defined and consistent
set of preferences, and who is certain how
personal choices will affect those preferences.
reasonable risk
A risk that is known and judged to be acceptable
by the buyer.
reliability
The probability that a product will function as the
consumer is led to expect.
right to privacy
The right of persons to determine what, to whom,
and how much information about themselves will
be disclosed to other parties.
selling costs
The additional costs of resources that do not go
into changing the product, but are invested instead
in persuading people to buy the product.
service life
The period of time during which a product will
function as effectively as the consumer is led to
expect it to function.
social costs theory (of a The theory that the duties of the manufacturer
seller's duties)
extend far beyond those imposed by contractual
and due care duties; manufacturers should pay the
cost of any injuries sustained through any defects
in their products, even when they exercise due
care and have taken all reasonable precautions.
(Related to the legal doctrine of strict liability.)
strict liability
A legal doctrine that holds that manufacturers
must bear the "external" costs of injuries resulting
from unavoidable defects in the design of an
artifact constitute part of the costs society must
pay for producing and using an artifact.
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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