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Chapter 6 Discussion:Chapter 6 Discussion:Ethics of Consumer Ethics of Consumer Protection and MarketingProtection and Marketing

Shweta SinghShweta Singh

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Markets & Consumer ProtectionMarkets & Consumer Protection What is the free market argument for why What is the free market argument for why

the free market will automatically provide the free market will automatically provide the appropriate level of product safety?the appropriate level of product safety? How do the critics respond to the free market How do the critics respond to the free market

argument by pointing to information problems?argument by pointing to information problems?• Why doesn’t the market provide product Why doesn’t the market provide product

information?information?

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Contract TheoryContract Theory What is the duty to comply?What is the duty to comply?

All products involve some risks. How can we All products involve some risks. How can we decide if it is a “reasonable risk” for consumers decide if it is a “reasonable risk” for consumers to bear?to bear?

• Does the following violate the duty to comply? Does the following violate the duty to comply? – Some hamburgers sold by a fast food restaurant are Some hamburgers sold by a fast food restaurant are

contaminated with E. coli bacteria. People who eat the contaminated with E. coli bacteria. People who eat the hamburgers get sick: stomach cramps, vomiting, fever, hamburgers get sick: stomach cramps, vomiting, fever, and watery or bloody diarrhea. Some people experience and watery or bloody diarrhea. Some people experience life-threatening symptoms, including kidney failure, life-threatening symptoms, including kidney failure, seizures, and stroke. Some recover completely, others seizures, and stroke. Some recover completely, others suffer permanent health effects, such as kidney damage, suffer permanent health effects, such as kidney damage, and some die.and some die.

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Contract TheoryContract Theory What is the duty of disclosure?What is the duty of disclosure?

Does the following violate the duty of Does the following violate the duty of disclosure?disclosure?

• Some people are very allergic to peanuts or things Some people are very allergic to peanuts or things derived from peanuts. A food company uses peanut derived from peanuts. A food company uses peanut oil in its products. On the ingredient list, the oil in its products. On the ingredient list, the company only lists “vegetable oil” without company only lists “vegetable oil” without specifying “peanut oil.”specifying “peanut oil.”

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Contract TheoryContract Theory What is the duty not to misrepresent?What is the duty not to misrepresent?

Does the following violate the duty not to Does the following violate the duty not to misrepresent?misrepresent?

• An insurance salesperson rents a desk in a bank An insurance salesperson rents a desk in a bank lobby; the salesperson does not work for the bank. lobby; the salesperson does not work for the bank. The bank doors have decals that say “Deposits The bank doors have decals that say “Deposits guaranteed by the FDIC.” The insurance salesperson guaranteed by the FDIC.” The insurance salesperson is selling insurance that is not a bank account, and is selling insurance that is not a bank account, and so is not guaranteed by the FDIC. The insurance so is not guaranteed by the FDIC. The insurance salesperson puts up a sign on the desk that says salesperson puts up a sign on the desk that says “Investments 5% Guaranteed.” The “guarantee” is “Investments 5% Guaranteed.” The “guarantee” is being made by the insurance company.being made by the insurance company.

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Contract TheoryContract Theory What is the duty not to coerce?What is the duty not to coerce?

Give an example of a high-pressure sales tactic Give an example of a high-pressure sales tactic that would cross the line and become coercion.that would cross the line and become coercion.

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Due Care TheoryDue Care Theory What is the basis of due care theory?What is the basis of due care theory? What is a violation of due care theory?What is a violation of due care theory? How can a company exercise due care?How can a company exercise due care?

The Due Care theory argues that The Due Care theory argues that manufacturers have specialized manufacturers have specialized knowledge that consumers don't so that knowledge that consumers don't so that they are in a better position to appraise they are in a better position to appraise risk than consumers are. Thus, they must risk than consumers are. Thus, they must take reasonable and adequate steps to take reasonable and adequate steps to protect the interests of consumers.protect the interests of consumers.

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The responsibilities of a manufacture The responsibilities of a manufacture would include determining whether the would include determining whether the design of a product has any inherent design of a product has any inherent risks that are unacceptable. Safety risks that are unacceptable. Safety devices should be incorporated into the devices should be incorporated into the design. production should be conducted design. production should be conducted so as to eliminate any defective items and so as to eliminate any defective items and warning labels details risks should be warning labels details risks should be attached to every product.attached to every product.

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ExamplesExamples Does the following violate contract theory, Does the following violate contract theory,

or due care theory, or both?or due care theory, or both? A person is using a lawnmower. The grass gets A person is using a lawnmower. The grass gets

plugged up in the discharge chute. The person plugged up in the discharge chute. The person reaches into the discharge chute to clear the reaches into the discharge chute to clear the grass, the blade is still spinning, and cuts off grass, the blade is still spinning, and cuts off several fingers.several fingers.

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ExamplesExamples Does the following violate contract theory, Does the following violate contract theory,

or due care theory, or both?or due care theory, or both? An 81-year-old woman buys a cup of coffee An 81-year-old woman buys a cup of coffee

from McDonald’s. It spills on her lap. She from McDonald’s. It spills on her lap. She suffers third-degree burns, spends 8 days in the suffers third-degree burns, spends 8 days in the hospital, and undergoes skin graft operations. hospital, and undergoes skin graft operations. McDonald’s kept its coffee at 180-190 degrees; McDonald’s kept its coffee at 180-190 degrees; most coffee at home is 135-140 degrees. most coffee at home is 135-140 degrees. Serious burn hazards exist at 140 or higher.Serious burn hazards exist at 140 or higher.

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ExamplesExamples McDonald’s coffee case outcomes:McDonald’s coffee case outcomes:

• Jury award:Jury award:– Compensatory damages = $200,000 but reduced to Compensatory damages = $200,000 but reduced to

$160,000 because jury decided customer was 20% at fault$160,000 because jury decided customer was 20% at fault

– Punitive damages = $2,700,000Punitive damages = $2,700,000

– Total = $2,860,000Total = $2,860,000

• Judge’s decision:Judge’s decision:– Compensatory damages = $160,000Compensatory damages = $160,000

– Punitive damages = $480,000Punitive damages = $480,000

– Total = $640,000Total = $640,000

• Final settlement: secretFinal settlement: secret

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Social Costs TheorySocial Costs Theory What is social costs theory?What is social costs theory? What is the utilitarian argument in favor of What is the utilitarian argument in favor of

social costs theory?social costs theory? What are the criticisms of social costs What are the criticisms of social costs

theory?theory?

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Marketing EthicsMarketing Ethics What guidelines can we use to draw the line What guidelines can we use to draw the line

between “hype” (“puffery”) and deception?between “hype” (“puffery”) and deception? Example: A car company runs TV ads that Example: A car company runs TV ads that

emphasize that a car can be leased for “zero emphasize that a car can be leased for “zero down.”down.”

• On the basis of the ad, would you expect to have to On the basis of the ad, would you expect to have to write a check on the day you sign the lease contract?write a check on the day you sign the lease contract?

• In fact, you would have to write a check for a $450 In fact, you would have to write a check for a $450 “acquisition fee” plus a security deposit plus the “acquisition fee” plus a security deposit plus the first month’s lease payment. Is the “zero down” first month’s lease payment. Is the “zero down” claim in the ad deceptive?claim in the ad deceptive?

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Consumer PrivacyConsumer Privacy What guidelines can we use to balance a What guidelines can we use to balance a

consumer’s right to privacy against the consumer’s right to privacy against the needs of business to use information about needs of business to use information about consumers?consumers?

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Case: Case: AIDS and NeedlesAIDS and Needles How common are needle-stick injuries in How common are needle-stick injuries in

healthcare settings?healthcare settings? What are the possible adverse health effects of What are the possible adverse health effects of

a needle-stick injury?a needle-stick injury?

What is the What is the Safety-Lok Syringe?Safety-Lok Syringe? Why didn’t more hospitals adopt the Safety-Why didn’t more hospitals adopt the Safety-

Lok Syringe?Lok Syringe? What caused Becton Dickinson eventually to What caused Becton Dickinson eventually to

begin selling the Safety-Lok in all sizes and at begin selling the Safety-Lok in all sizes and at lower prices?lower prices?

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Case: Case: AIDS and NeedlesAIDS and Needles In general, what are the duties of In general, what are the duties of

manufacturers and sellers according to manufacturers and sellers according to Contract Theory? Contract Theory? What would be a hypothetical example of What would be a hypothetical example of

Becton Dickinson violating Contract Theory?Becton Dickinson violating Contract Theory? Did Becton Dickinson violate Contract Theory? Did Becton Dickinson violate Contract Theory?

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Case: Case: AIDS and NeedlesAIDS and Needles In general, what is required of In general, what is required of

manufacturers and sellers according to Due manufacturers and sellers according to Due Care Theory? Care Theory? How can companies exercise due care?How can companies exercise due care? Did Becton Dickinson violate Due Care Did Becton Dickinson violate Due Care

Theory?Theory?