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1: Introduction

Type of issue :
(a) Bribery - create a conflict of interest
Bribery is used to manipulate people by buying influence. The
offering, giving, receiving, or soliciting of something of value for
the purpose of influencing the action of an official in the
discharge of his or her public or legal duties.

Bribes create a conflict of interest between the person
receiving the bribe and his or her organization This person has a
fiduciary interest to the organization The bribe creates a private
interest that is likely to conflict with the organizations interest

(b) Coercion - controls people by force or threat.
a compulsion; constraint; compelling by force or arms or
threatIt may be actual, direct, or positive, as where physical
force is used to complete action against ones will or implied,
legal or constructive, as where one party is constrained by
subjugation to another to do what his free will would refuse

(c) Deception - manipulates people and firms by misleading
them. the act of deceiving; intentional misleading by falsehood
spoken or actedKnowingly and willingly making a false
statement or representation, expressed or implied, pertaining
to a present or past existing fact

(d) Theft - act of stealing, d taking of property without the
owners consent. the act of stealing, the taking of property
without the owners consent

(e) Unfair Discrimination - unfair treatment or denial of normal
privileges to persons. Unfair treatment or denial of normal
privileges to persons because of their race, age, sex, nationality
or religionA failure to treat all persons equally when no
reasonable distinction can be found between those favored and
those not favored

IMPORTANCE OF ETHICS in business: essential for long-term
business success. Unethical behaviour distorts d market system;
leads to an inefficient allocation of resources.

Conditions for effective market system: (a) d right to own and
control private property (b) freedom of choice in buying and

selling goods and services (c) d availability of accurate Lack of understanding of what values are
information concerning those goods and services
Feeling obliged to have organisation values so people pay lip

Macro effect of unethical behaviour:
Results in truisms, blandness
People matter
We will act with integrity
And once we have written them down
Committed them to a plaque on the wall, then
We forget about them
Sort of like yesterdays wall paper
mean anything
Values need to live and be part of our every day behavior
People need to understand them

Values define who we are, how we behave and how we

perform at work
Micro perspective:
Five Key Stages
Ethics is closely associated with trust. Most people will agree
that in order to develop trust, behaviour must be ethical. While Define the values with consensus
Define the behaviours with consensus
ethical behaviour is not sufficient to gain trust, it is necessary.

Trust: (a) expectation of technically competent performance Re-enforce
and (b) expectation of fiduciary responsibility (represent d Deal with Consequences
interests o d business when deals with external stakeholders).

Everyone being part of a common cause is critical

Cant impose values - everyone has to be part of creating them

Two norms are widely accepted in business dealings (1)

Values can not be developed by the senior management team

Commitments are to be honored in almost all situations; one
on an away day
does not welsh on a deal (2) One ought to produce a good
product and stand behind it (3) Business would not run People need to know why there are organisational values
They need to be able to sign up to them
smoothly if business people could not trust one another.
Let the weeds emerge!!...Then deal to them

Fundamental elements of trust: (a) Predictability - eliminate
the values & behaviors
surprises that are not usually welcome in business environment
Values guide how we interact with one another, how we
perform, how we think.
Dependability - provides assurance that one can be counted on
to perform as expected (c) Faith - is d belief that one will Values are about who we are and all we do.
People need to know how to apply them at work
continue to be predictable and dependable.
For example: People Matter
We would increase productivity and reduce stress
We would not spend 50% of our day managing poor Playing our part in creating a great workplace
Replying to internal emails within 24 hours
performance and dealing with people conflicts

We would not be fixing things because others failed to take

We would not be dealing with so many upset customers

Make a plan Values will not change over night because you
We would understand that we are all working together in a
developed some it will take time to change a culture and that
shared environment
is what values are mostly about - culture change
So what are the issues?

Put together a robust plan- introducing new activates

throughout the year
Make sure the values are expressed in everyday language
Keep communicating the values as an ongoingproject

Email, intranet posters, brochures, internal publications-
Make sure new people in the organisation know about them
induction, manuals, pledge cards
Value people recognize people and reassure them that they
are valued and the job they do is valued- it is worth doing well
and that is all part of your values!
Live the values tell people they have a right to expect others
to as well

Place a visible premium on identifying exemplary behavior that
support the values
Endorse it promptly and publicly
Relate with these behaviours as this is the way we do things
around here.
Provide simple guidelines on practical implementation
Get the CEO to send them a card acknowledge work in the
staff meetings call by someone's desk and say hey.. Well
Encourage peer recognition

It is equally useful to remind people when they are not living
the values- providing we are
Accept that sometimes people may have been using best
intentions but..
Show we are not blaming but raising awareness
Are honest and fair
Make space for the views of others
Treat people with respect

So if it is that easy why doesnt it always work?
Values too conceptual and people dont know what to do
Ongoing implementation, re-inforcement and correction can be
challenging and many stop at the initial implementation
People will need training in coaching, mentoring and role
modeling to encourage and develop values and behaviors in
others. This is often a BIG job.
We forget what matters .

And we don't do what David Lange told Sir Edmund Hilary to do

when he appointed him to High Commissioner of India Do
what you think is right he told Sir Ed and that was the
motto this great man of integrity did for the four years he
served in India.

Tips to Values work
Put time effort and budget into making values meaningful
Ensure values are championed at the top level but owned by
Ensure that the values are lived by those with management
Communicate values with vigor and emery
Reward values evident activity promptly and publicly
Encourage peer nominations
Build your values into the recruitment process
Build you values into performance assessment

Chap 2: Approaches to business ethics

Ethic of care: an ethic that emphasizes caring for concrete well
being of those near to us.

Ethic of virtue: an ethic based on evaluations of the moral
character of persons or group.

Course of action would have the most beneficial consequences
and the fewest harms, at least in comparison to the results of
abounding referred to as a consequentialist approach to ethics
and, more specifically, as a utilitarian approach.

Utilitarianism: a general term for any view that holds that
actions and policies should be evaluated on the basis of the
benefits and costs they will impose on society. Specifically,
utilitarianism holds that the morality right course of action in
any situation is the one that, when compared to all other
possible action, will produce the greatest balance of benefits
over costs for everyone affected.
Hence, the term utilitarianism is used for any theory that
advocates selection of that action or policy that maximizes

Utilitarianism is not a theory of calculated selfishness: it is a
theory that says that we should strive to do what is best for
everyone in society, and that we do what is best for everyone

when we take into account all the benefits and harms that
everyone will bear as the result of our actions.
The utilitarianism principle holds that: an action is right form an
ethical point of view, if and only if, the sum total of utilities
produced by the act is greater than the sum total of utilities
produced by any other act the agent could have performed in
its place.

The utilitarian principle assumes that we can somehow
measure and add together the quantities of benefits produced
by an action and often measure and subtract from those
benefits the quantities of harm the action will produce.

Three mistakes to watch out for when using utilitarianism.
The first, the principle says that the right action for a particular
occasion is the one that produces more utility than any other
possible action, it does not mean that the right action is the one
that produces the most utility for the person performing the
action. Rather, an action is right if it produces the most utility
for all persons affected by the action, including of course, the
person who performed the action.
Second, to think that the utilitarian principle requires us to
consider only the direct and immediate consequence of our
actions. Instead both the immediate and all foreseeable future
costs and benefits that each alternative will provide for each
individual must be taken into account, as well as any significant
indirect effects.
Third, the principle does not say that an action is right so long
as its own benefits outweigh its own costs. Instead, it says that
the right action is the one whose combined benefits and costs
outweigh the combined benefits and costs of every other action
the agent could carry out. In other words, utilitarianism holds
that to determine the morally right action in any given
situation, we must compare the utility of all of the action that
one could caryy out in that situation; only then can we
determine which action will produce more utility than any of
the others.

How we should behave in a particular situation according to
First, I must determine what alternative actions or policies are
available to me in that situation.
Second, for each alternative action, i must estimate the direct
and indirect benefits and costs that the action will probably
produce for each and every person affected by the action in the
near future.

Third, for each action i must subtract the costs from the
benefits to determine the net utility each action.
Fourth, the action that produce greatest sum total of utility
must be chosen as the ethically appropriate course of action.

Cost Benefits analysis: a type of analysis used to determine the
desirability of investing in a project by calculating whether its
present and future economics benefits put weight its present
and future economic costs.
If monetary benefits of a certain public project exceed the
monetary costs and if the excess is greater than the excess
produced by any other feasible project, then the project should
be undertaken. In this form of utilitarianism, the concept of
utility is restricted to monetarily measurable costs and benefits.
Efficiency: operating in such a way that one produces a desired
output with the lowest resource input. It can mean different
things to different people, but for many it means operating in
the manner that produces the most from a given amount of
resources, or that produces a desired output with the lowest
resource input. Such efficiency is precisely what utilitarianism
advocates because it holds that one should always adopt the
course of action that will produce the greatest benefits at the
lowest cost.
Measurement Problem
One major set of problems with utilitarianism is centered on
the difficulties of trying to measure utility. One problem is this:
how can the utilities different actions have for different people
be measured and compared as utilitarianism reuires? If we
cannot know which actions will produced the greates amounts
of utility, then we cannot apply the utilitarian principle.
Second problem is that there are certain kinds of benefits and
costs that seem impossible to measure. Because we cannot
predict all of the future benefits and costs of an action, there is
no way we can measure them.
Third, it is unclear exactly what should count as a benefits and
what should count as a cost. This lack of clarity is especially a
problem when we are dealing with controversial things on
which different people place very different values.
Fourth, this utilitarian assumption that all benefits are
measureable implies that the benefits can be traded for
equivalents of each other.
Non-economic goods: goods, such as life, love, freedom,
equality, health, beauty, whose value is such that it cannot be
measured in economic terms.
Problem with Rights and Justice

First, utilitarianism has led us to approve an act of murder that

is an obvious violation of an individuals most important right.
Second, utilitarianism looks only at how much utility is
produced in a society and fails to take into account how that
utility is distributed among the members f society.
Right and Justice
Justice: distributing benefits and burdens fairly among people.
Rights: individual entitlements to freedom of choice and well-

The concept of a Right
Legal right: an entitlement that derives from a legal system that
permits or empowers a person to act in a specified way or that
requires others to act in certain ways toward that person
Moral rights or human rights: rights that all human beings
everywhere posses to an equal extent simply by virtue of being
human beings.
Characteristics of Rights
a. A right is an individuals entitlement to something
b. Right derived from a legal system confer entitlements
only on individuals who live where that legal system is in
c. Moral or human rights are entitlements that moral norms
confer on all people regardless of their legal system.
Moral Rights
a. Can be violated even when no one is hurt
b. Are correlated with duties others have toward the person
with the right.
c. Provide individuals with autonomy and equality in the
free pursuit of their interest.
d. Focus on securing the interests of the individual unlike
utilitarian standards which focus on securing the
aggregate utility of everyone in society.
Negative rights: duties others have to not intefere in certain
activities of the person who holds the right.
Example: if i have a right to privacy, this means that every other
person, includingmy employer, has the duty not to invade my
private affairs.
Positive rights: duties of other agents (it is not always clear
who) to provide the holder of the right with whatever he or she
needs to freely pursue his or her interests.
Example: if i have a right to an adequate standard of living, this
does not mean that others must not interfere; it also means
that if i am unable to provide myself with an adequate income,

then i must be provided with such an income (perhaps by the


Contractual Rights and Duties: the limited rights and
correlative duties that arise when one person enters an
agreement with another person.
Contractual rights and duties are distinguished, first, by the fact
that they attach to specific individuals and the correlative
duties are imposed only on other specific individuals. If i agree
to do something for you, everyone else does not acquire new
rights over me, nor do I acquire any new duties toward them.
Second, contractual right arise out of a speciic transaction
between particular individuals. Unless i actually make a promise
or enter some other, similar arrangement with you, you do not
acquire any contractual right over me.
Third, contractual rights and duties depend on a publicly
accepted system of rules that define the transactions that give
rise to those rights and duties.
Morality in business is costly. Why? A morally responsible
company must pay special attention to product safety,
environmental impact, truthful advertising, scrupulous
marketing, and humane working conditions.
Relationship between ethics and a profit-oriented business (1)
Weak version - good ethics results in good business; moral
businesses practices are profitable by Robert F. Hartley's.
Arguments: will have an economic advantage only in d long run
some not economically viable ex: retaining older workers
inefficient. Moral business practices that are good for business
depend upon what at that time will produce a profit.
Any overlap that exists between morality and profit is both
limited and incidental.
(2) Strong version - good business results in good ethics. In a
competitive and free market, d profit motive will in fact bring
about a morally proper environment. The role of consumers
demands. Weakness: it assumes that consumers or workers will
demand d morally proper thing.
Conclusion: not every moral business practice will simply
emerge from d profit principle as suggested by either d weak or
strong views.

Conclusion: not every moral business practice will simply

emerge from d profit principle as suggested by either d weak or
strong views.

Developing moral judgement:

In theory, a business could address these three concerns by
assigning corporate attorneys and public relations experts to
escort employees on their daily activities. Alternative
businesses turn to philosophers to instruct employees on
becoming moral.

Sources of ethics:

Moral obligations in business are restricted to following d law.
Most universal aspects of Western morality have already been
put into legal system. Moral principles beyond what the law
requires ~ supra-legal principles - appear to be optional. ..
Unreasonable to expect businesses to perform duties for which
appear to be optional. Unreasonableness
only apply in societies that do not have a strong external source
of morality. For Muslim country apply law plus Sharia while
Chinese usually apply Confucianism.

Strictly following legal approach to business ethics may indeed

prompt businesses to do the right thing, as prescribed by law.

Even in the best legal context, the law will lag behind moral
condemnation of certain unscrupulous, yet legal business
It applies only to countries whose business-related laws are
morally conscientious. The situation may be different for some
developing countries with less sophisticated laws and
regulatory agencies. Morality must be introduced as a factor
that is external from both the profit motive and the law.

Broad moral principles: (a) Harm principle: businesses should
avoid causing unwarranted harm (b) Fairness principle:
business should be fair in all of dir practices (c) Human rights
principle: businesses should respect human rights (d)

Autonomy principle: businesses should not infringe on d

rationally reflective choices of people (e) Veracity principle:
businesses should not be deceptive in their practices.

Conclusion: The three approaches to business ethics have
limitations. Following any will bring us closer to acceptable
moral behaviour. Close attention to profit motive and the moral
interests of consumers might generate some morally
responsible business decisions. Find additional moral guidance
by looking at the laws that apply specifically to businesses. In
gray areas that are not adequately addressed profit motives
and the law, we can turn for guidance to a variety of general
and specific moral principles.

Chap 3: Ethics of Capitalism

Globalization: the process by which the economic and social
systems of nations are connected together so that goods,
services, capital, and knowledge move freely between nations.
Globalization has connected nations together so that goods,
devices, capital, and knowledge increasingly flow freely
between them. These are carried by ever faster and cheaper
transportation and communication systems, and these flows
are facilitated by free trade agreements and international
institutions like the WTO and IMF.

Economic System
Economic system: the system a society uses to provide the
goods and services it needs to survive and flourish.
This system must accomplish two basic economic tasks;
a. Producing goods and services, which requires
determining what will be produced, how it will be
produced, and who will produce it.
b. Distributing these goods and services among its
members, which requires determining who will get what
and how much each will get.
Basic Methods to Make Choices: (a) Tradition (b) Command
System (c) Market System - to Key Components: Private
property and Voluntary exchange..

Tradition based societies: the system a society that rely on
traditional communal roles and customers to carry out basic
economic tasks.
Command economy: an economic system based primarily on a
government authority (a person or a group) making the

economic decisions about what is to be produced, who will

produce it, and who will get it.
Market economy: an economic system based primarily on
private individuals making the main decisions about what they
will produce and who will get it.
Free markets: markets in which each individual is able to
voluntarily exchange goods with others and to decide what will
be done with what he or she owns without interference from

Ideology: a system of normative beliefs. A persons ideology:
Colors perceptions and Influences actions.

Spectrum of Ideologies: (a) Individualistic - Each person
responsible for themselves. Role of government limited:
Protect private property, Enforce contracts (b) Communitarian -
Role of government broad: Define needs of society and ensure
needs are met. Ex: it takes a village to raise a child

Fundamental Choices: What goods and services should be
produced? How should d goods and services be produced?
Who should get d goods and services?

Adam Smith 1776: D Wealth of Nations
Some societies do better than others not because of access to
natural resources or exporting more than importing
(Mercantilism) Capitalism - utilitarian perspective.

Capitalism is ethical on utilitarian grounds - private property
and unregulated free markets produce d greatest net social
benefits of any socioeconomic system: laissez-faire. Limited
role of government: Protect private property, Enforce
contracts. .. Government regulation of business is unethical on
utilitarian grounds.

The free market, coupled with private property, ensures that
the economy tis producing what consumers want, that prices
are at the lowest levels possible, and that resources are
efficiently used. The economic utility of societys members is
thereby maximized.
Invisible hand: according to Adam Smith, the market
competition that drives self-interested individuals to act in
ways that serve society.
According to Adam Smith


Market competition ensures the pursuit of self-interest

in markets advances the publics welfare which is a
utilitarian argument.
Government interference in markets lowers the publics
welfare by creating shortages or surpluses.


Criticisms of Adam Smith

Rests on unrealistic assumption that there are no
monopoly companies.
Falsely assumes that all the costs of manufacturing
something are paid by manufacturer, which ignores the
costs of pollution
iii. Falsely assumes human beings are motivated only by a
self-interested desire for profit
iv. Some government planning and regulation of markets is
possible and desirable.



John Locke (163to1704): Rights perspective;

Humans have natural rights - Liberty (freedom) and Private
property. without government, humans would be in a state of
nature. Freedom: Free of all human-made laws
Property: Resources combined with work. Common fear: theft
of freedom or property.

Government is invented to protect freedom and liberty.
Capitalism is ethical on rights grounds - based on liberty and
private property. Government regulation unethical - infringes
on liberty and private property.

Critics of John Locke: ARE d liberty and property rights of d
buyer and seller d only relevant rights? Ex: cigarette. If there
are rights at stake in addition to d liberty and property rights of
d buyer and seller, then government regulation might be
justified to protect all d relevant rights.

In Lockes State of Nature:
i. All persons are free and equal
ii. Each persons owns his body and labour, and whatever he
mixes his own labour into
iii. Peoples enjoyment of life, liberty, and property are
unsafe and insecure
iv. People agree to form a government to protect and
preserve their right to life, liberty, and property.
Criticisms of Lockean Rights


Locke does not demonstrate that individuals have

natural rights to life, liberty, and property
Lockes natural rights are negative rights and he does not
show these override conflicting
Lockes rights imply that markets should be free, but free
markets can be unjust and can lead to inequalities
Locke wrongly assumes human being are atomistic

Herbert Spencer (18to01903): Social Darwinism - based on

Charles Darwins Theory of Evolution: natural selection /
survival of d fittest. Idea of survival of d fittest to societies -
Some individuals are better than others. Free competition helps
ensure only d most capable survive and rise to d top.
Government should not interfere. If government helps d weak,
they survive, pass on their characteristics, and society is
thereby weakened.

Karl Marx (18181883): witnessed Industrial Revolution -
application of power-driven machinery. Sources of Income: (a)
Bourgeoisie - owners of d means of production (b)
Proletariat - people who have to sell their labour.
Competition for jobs among the proletariat keeps wages at
subsistence levels
Meanwhile, the bourgeoisie earn profits.

Workers became alienated from their (i) products: workers lost
control of the products of their labor (ii) own work: workers lost
control of how they did their jobs (iii) themselves: workers were
taught false views of their needs and desires (iv) each other:
workers were kept fighting amongst themselves (divide and

Karl Marx Theory of History: (1) Economic Substructure (a)
Forces of Production: land, labor, raw materials, technology,
etc. (b) Relations of Production: methods of social control; in
Capitalism, control is based on ownership; creates d social
classes. (to) Social Superstructure: government and ideologies.

Karl Marxs Conclusions: Role of government in capitalism -
protect the wealth and power of the bourgeoisie. Rich get
richer, poor get poorer .. Unfair.

Solution: replace control based on ownership with control
based on authority ex.
Hire experts to control resources based on whats best for
society as a whole.

Mixed Economy: Use property rights and d market system to
create wealth. But limit d actions of property owners with
government regulations. Ex: Property rights with zoning laws,
Tax, Pollution and Safety regulations, Welfare laws.

Government Regulation:
(a) Utilitarian: Correct externalities
(b) Rights: Protect rights (in addition to liberty and property
rights of buyer and seller)
(c) Justice: Ensure fairness
(d) Care: Care for people.

Intellectual Property Rights:
(1) Private property view (a) Utilitarianism: private ownership
creates incentives (b) Rights (Locke): creator has the right to
decide use.
(2) Socialist view - Creativity doesnt require incentives.
Common good best served by public ownership.

Chap 4: Ethics in the market place.

If free markets are justified, it is because they allocate
resources and distribute commodities in ways that are just, that
maximize the economic utility of societys members, and that
respect the freedom of choice of both buyers and sellers. These
moral aspects of a market system depend crucially on the
competitive nature of the system.
Anticompetitive practices morally uncertain monopoly and

Perfect Competition: a free market in which no buyer and
seller has the power to significantly affect the prices at which
goods are being exchanged.
Pure monopoly: a market in which a single firm is the only
seller in the market and which new sellers are barred from
Oligopoly: a market shared by a relatively small number of
large firms that together can exercise some influence on prices.
Free markets are moral because they allocate resources and
distribute commodities (i) in ways that are just (ii) that
maximize economic utility (iii) that respect d liberty of both
buyers and sellers. Under perfect competition, "no buyer or
seller has the power to significantly affect the prices at which
goods are exchanged."

Features of perfectly competitive markets:

(i) Distribution: numerous buyers and sellers, none of whom
has a substantial market share
(ii) Open: buyers and sellers are free to enter or leave d market
(iii) Full and perfect knowledge: each buyer and seller has full
and perfect knowledge of each others' doings
(iv) Equivalent goods: goods being sold are similar enough that
buyers don't care whose they buy
(v) Unsubsidized: costs of producing or using goods is borne
entirely by d buyers and sellers (vi) Rational economic agency:
all buyers and sellers act as egoistic utility maximizes; try to buy
(or produce) as low as possible and sell as high as possible
(vii) Unregulated: no external parties such as government
regulate the P, Q, or quality of goods.

Note: 1-2 = openness and distribution -- d "basic conditions" 3-
6 = "idealizing conditions" 7 = non regulation - a measure of
how free d market (a) all real economies are mixed, mixing; free
market elements and command elements (b) regulative
admixtures justified by appeal to social utility, distributive
justice and rights (especially positive or welfare rights).

Self-regulation: d basis for d alleged moral benefits of
competitive markets - SS/DD theory.

Equilibrium in Perfectly Competitive Markets;

(i) Principle of Diminishing Marginal Utility - each additional
item consumed is less useful or satisfying than each of d earlier
items and consequently is less valuable than each of d earlier
items. .. "d price consumers are willing to pay for goods
diminishes as d quantity of goods they buy increases" -
affecting demand.

(ii) Principle of Increasing Marginal Costs - each additional item
produced after a certain point, costs more to produce than
earlier items. Point determined by countervailing economies of
scale and scarcity or plenitude of resources. Costs breakdown =
ordinary costs + normal profits ("ordinary" costs of production
and distribution - costs of labour, materials marketing
distribution etc. "normal" profit: "d average profit d producers
could make in other markets that carry similar risks") - affecting

Capitalist distributive justice is well served by perfectly
competitive markets. Economic utility or efficiency is best

served; sellers sell and producers produce what consumers

want. Negative rights are well respected, especially rights of
economic liberty to buy and sell whatever you choose,
whenever you choose to and from whomever you choose.

Limitations on Perfectly Competitive Markets' Claims to Moral
Superiority: (a) Justice under competing conceptions not so
well served (b) Egalitarian justice violated by income & wealth
disparities arising under PCMs (c) Distribution according to
ability to pay vs. need is contrary to needs-based conceptions
(d) Counting the value of labor as the price it commands on the
job market contrary to Marxian contribution-based justice.

Justice and benefits alleged accrue only to market participants
or those with money to buy. Positive rights of the poor may be
violated: e.g. rights to food & shelter, education, health-care.

Conditions for perfect competition may conflict with care.
Rational egoistic utility maximization neglects caring.
Encourage bad character traits (i.e. greed & self-seeking,
materialism) and discourage certain good traits (i.e. kindness,
caring, generosity).

Threats to Competition
Monopoly, Oligopoly, Anti-competitive practices

Monopoly Competition: 1-2 are violated; Not distributed but
concentrated and not open but closed.
2 Key Characteristics:
Only one seller: 100% market share
Extremely high barriers to entry:
High capitalization costs (Example: electric power and Patents).
Example: pharmaceutical drugs

Monopoly Economic Effect
Control over prices:
-Higher prices than would occur without competition
-Higher profits for the monopolist

Monopoly Moral Effect
Violates utilitarianism
Deadweight loss to society from higher prices
Violates rights: restricted choices
Violates justice: unfair to consumers

Monopoly Regulation
Natural monopoly: regulate prices
Example: electric power?
Government-granted monopoly through patents: limit length of
patent protection
Example: pharmaceutical drugs
Earned monopoly: regulate ability to use earned monopoly
power to extend monopoly to new markets
Example: Microsoft?

Principal Market-Distorting Effect - inability of other
competitors to enter d market (increasing supplies; bidding
prices down). Results in artificially high prices - above d "natural
price" or equilibrium point.

Natural price = cost of production + going-rate-of-profit (CP +
GRP) d seller charges more than d goods are worth (i.e., their
natural price) .. d prices d buyer is forced to pay are unjust (i.e.
> CP +GRP).

Under monopoly conditions prices kept above equilibrium;
against capitalist justice that says "to each according to their
contribution of labor or investment.
Monopolies foster distributive inefficiency: demand is not
served. Shortages (indicated by high profits) while other firms
unable to enter d market to make up these shortages. Excess
profits absorbed by d seller are resources not needed to supply
d amounts of goods d consumers are getting.

Monopolies remove competitive pressures making for
productive efficiency; Discretionary preferences of consumers
not as well-served: consumers forced cut back more than they
would have had to (under "normal" conditions) and have to buy
d monopolized goods.

Oligopolistic Competition: 1-2 are absent. Not distributed but
concentrated and not open but closed.
2 Key Characteristics:
-Small number of sellers dominate the market -High barriers to
-Threat of collusion among sellers to act in unison: act as
monopoly instead of competitors
-Government regulation:

-Prevent collusion

Mergers can generate anti-trust concerns. Mergers are thus
subject to government regulation 3 types of mergers:
Horizontal merger, Vertical integration, Conglomerate merger.

Vertical Integration
Merger up or down the chain of production and distribution.
Example: Merger of Time-Warner (content) & AOL
Anti-trust concern: might harm competition significantly. Why?
Possibility of cut-off supply to the competitor.. Issue: Are there
alternative sources of supply that are economically viable?.
Regulate merger terms & conditions

Conglomerate Merger
Totally unrelated companies merge. Example: US Steel and
Marathon Oil. Rationale: diversificationdont put all your
eggs in one basket. Anti-trust concern: deep pockets / internal
cross-subsidization / may facilitate predatory pricing. Regulate
merger terms & conditions

Horizontal mergers; "unification of two or more companies
that were formerly competing in the same line of business" -
the chief cause of oligopolistic conditions.

Anticompetitive Dynamic: Creation of Virtual Monopoly
Conditions via Collusion. With only a few firms in the market it
is relatively easy for them to join forces and act as a unit "much
like a single giant firm"
(a) by agreeing to set prices at the same (excessively high) level
(i.e. tacitly: a "gentlemen's agreement" and explicitly: price
fixing). (b) by agreeing to restrict output & control supply

Violations of capitalist justice; cause negative impacts on (a)
economic utility by (i) distributive inefficiencies (ii) productive
inefficiencies and (iii) diminished discretionary preference
satisfaction and (b) similar negative (economic freedom) rights

Explicit agreements:
(a) Price fixing: managers meet (secretly) and agree to set
prices at artificially high levels (b) Manipulation of Supply: firms
agree to limit their production result in artificially induced

shortages hence in artificially high prices (c) Exclusive Dealing

Arrangements: firms sell to retailers on condition that retailers
will not buy from certain other companies (contra openness) or
will not sell outside of a certain geographical area (contra
distribution) (d) Tying Arrangements: d seller agrees to sell to
buyer only on condition that the buyer agrees to buy other
products from d firm (e) Retail Price Maintenance Agreements:
manufacturer sells to retailer only on d condition that they
agree to charge d same set retail price for d goods.

Tacit Agreements: Most collusion between oligopolies
consequently is based on genesis of unspoken cooperation.
Without any explicit agreement to cooperate, (i) they
undertake to act as if there were such an agreement (ii) you
might say there is such an agreement de facto or in practice. Ex:
Price-setting: when one major player raises prices, all the
would-be competitors follow suit.

3 Major US Anti-Trust Laws
Sherman Anti-Trust Act (1890), Clayton Act (1914), Federal
Trade Commission Act (1914)

Sherman Anti-Trust Act (1890)
Forbids: restraints of trade, monopolization, attempts to
monopolize, and conspiracies to monopolize. Example of
restraints of trade: price fixing.
Criminal statute
Violations can be felonies
Fines: corporations & individuals
Prison: individuals
Civil lawsuits: treble damages

Clayton Act (1914)
Forbids specific anti-competitive practices:
Mergers that tend to create a monopoly
Interlocking Boards of Directors among competitors
Exclusive dealing arrangements
Tying arrangements
Price discrimination (goods only, not services)
Civil statute: no criminal penalties

FTC Act (1914)
Unfair methods of competition
Unfair or deceptive acts or practices that affect commerce
Civil statute:

Remedies: cease and desist orders

Chap 5: Natural Resource & Environment

Triple Bottom Line: An accounting framework that incorporates
three dimensions of performance: social, environmental and
financial (3Ps: people, planet and profits).

Ecological system: an interrelated and interdependent set of
organisms and environments. Because the various parts of an
ecological systems is interdependent, the activities of one of its
parts will affect all the other parts and the well-being of each
part depends on the wellbeing of the other parts.
Ecological Ethics: the ethical view that nonhuman parts of the
environment deserve to be preserved for their own sake,
regardless of whether this benefits human beings.

Economic variables ought to be variables that deal with the
bottom line and the flow of money. It could look at income or
expenditures, taxes, business climate factors, employment, and
business diversity factors.

Environmental variables should represent measurements of
natural resources and reflect potential influences to its viability.
It could incorporate air and water quality, energy consumption,

natural resources, solid and toxic waste, and land use/land


Social variables refer to social dimensions of a community or
region and could include measurements of education, equity
and access to social resources, health and well-being, quality of
life, and social capital.

Issues: (a) Resource utilization (i) Resource depletion (ii)
Resource allocation across time
And (b) Pollution

Resource depletion: the consumption of finite or scarce
Global warming: the increase in temperatures around the
globe due to rising levels of greenhouse gases
Depletion Models: Exponential Depletion & Peaked Depletion.
Environmental rights
a. Blackstone argues human have a right to fulfil their
capacities as free and rational and a liveable environment
is essential to such fulfilment
b. So humans have a right to a liveable environment which is
violated by practices that destroy the environment
c. Such environmental rights can lead to absolute bans on
pollution even when the costs far outweigh the benefits.
Provide cost: the cost an individual or company must [pay out
of its own pocket to engage in a particular economic activity.
Social cost: the private internal costs plus the external costs of
engaging in a particular economic activity. Pollution is an
example of an external cost. Ex: dump hazardous waste into a
Unregulated free market only considers private cost: market
price reflects private cost only.

Exponential Depletion:
Rate of use increases exponentially over time. Resource is used
until it is depleted. Quantity of

Each Year

Today Depletion Time

Quantity of
Each Year



Usage: Increases exponentially for a while, peaks and then
declines. Resource never depleted. Reasons: As use increases,
cost of extraction rises. Higher costs result in higher prices.
Higher prices create incentives. Incentives for consumers (cut
use directly and substitutes) and producers (substitutes).

Resource Depletion/Conservation: Supporters of free markets
say dont worry about resource depletion. Free markets
automatically take care of the issue. Critics: Dont assume that
technology will bail us out of the problem

Resource Allocation Across Time: Do the current generations
have a moral obligation to save (conserve) resources for
future generations?

Apply principles: Utilitarian, Rights and Distributive Justice.

Utilitarian Principle: Free market ensures resource will be used
at the time of its highest value. Why? Owner of resource wants
the greatest value. Critics: Uncertainty, Discounting to present
value, Problem of multiple access / Dilemma of the commons.

Rights: Which generation has a right to use the resource?
People who do not exist cannot have rights. If they have rights,
are they of higher priority than our rights? Rights protect
interests. We dont know the interests of future generations.

Distributive Justice: Is it fair that the current generations get
the benefits of using the resource and leave the burdens for the
future generations?
John Rawls: Put yourself in the original position. Conclusion:
Fix what you can, but at least dont make things worse.

Pollution: the undesirable and unintended contamination of

the environment by human activity such as manufacturing,
waste disposal, burning fossil fuels, etc.

Pollution: Why?

Natural environment as a free good No one owns it, so no
owner seeks to protect it; allows us to externalize the cost of
disposing of our wastes by simply dumping it into the
Natural environment as an unlimited good Each persons
pollution is small compared to the natural environment.

Pollution Moral Issues: How far do we have a moral duty to go
in order to protect moral rights to a liveable environment?

Rights Principle:
(a) Human Rights: Each human being has a moral right to life
and to a liveable environment.
(b) Animal Rights: All animals have a moral right to life and to a
liveable environment.
(c) Rights of All Living Things: All living things have a moral right
to life and to a liveable environment.
(d) Eco-feminists: Care for the natural environment: all things
have a right to exist.

Protect the environment at all costs? Leads to a consideration
of the utilitarian principle.

Private cost: cost born by the seller
External cost: cost not born by the seller
Social cost = Private cost + External cost

Pollution is an example of an external cost. Ex: dump hazardous
waste into a river.

Unregulated free market only considers private cost: market
price reflects private cost only.

Effects of External Costs:

Free market price is too low; does not consider the external
costs. Regulation needed to raise the market price.


Social Costs =
Private Costs +

External Costs

External Costs

Supply =

Private Costs



Optimum Pollution Removal:




% Pollution

Optimum amount of pollution to remove depends on: Benefits
of removing pollution and Costs of removing pollution.
Standards Approach: Regulation specifies the maximum
amount of pollution allowed. Set standard at optimum.
Incentives Approach: More efficient than standards approach.
Methods: Pollution tax and Marketable pollution rights.

Ethical approaches to environmental protection

a. Nonhuman have intrinsic value
b. Human have a right to a liveable environment
c. Market approach: external costs violate utility, rights,
and justice so they should be internalized.
Internalization of the costs of pollution: absorption of
external costs by the producer, who then takes them into
account when determining the price of goods.
Environmental injustice: the baring of external costs of
pollution largely by those who do not enjoy a net benefit
from the activity that produces the pollution.
Environmental racism: claims that pollution levels tend to be
correlated with race so that the higher the proportion of racial
minorities living in an area, the higher the likelihood that the
area is subject to pollution.

Resource Depletion/Conservation: Supporters of free markets
say dont worry about resource depletion. Free markets
automatically take care of the issue. Critics: Dont assume that
technology will bail us out of the problem

Resource Allocation Across Time: Do the current generations
have a moral obligation to save (conserve) resources for
future generations?

Apply principles: Utilitarian, Rights and Distributive Justice.

Utilitarian Principle: Free market ensures resource will be used
at the time of its highest value. Why? Owner of resource wants
the greatest value. Critics: Uncertainty, Discounting to present
value, Problem of multiple access / Dilemma of the commons.

Rights: Which generation has a right to use the resource?
People who do not exist cannot have rights. If they have rights,
are they of higher priority than our rights? Rights protect
interests. We dont know the interests of future generations.

Distributive Justice: Is it fair that the current generations get
the benefits of using the resource and leave the burdens for the
future generations?
John Rawls: Put yourself in the original position. Conclusion:
Fix what you can, but at least dont make things worse.
Pollution: Why?
Natural environment as a free good No one owns it, so no
owner seeks to protect it; allows us to externalize the cost of
disposing of our wastes by simply dumping it into the

environment. Natural environment as an unlimited good

Each persons pollution is small compared to the natural

Pollution Moral Issues: How far do we have a moral duty to go
in order to protect moral rights to a liveable environment?

Rights Principle:
(a) Human Rights: Each human being has a moral right to life
and to a liveable environment.
(b) Animal Rights: All animals have a moral right to life and to a
liveable environment.
(c) Rights of All Living Things: All living things have a moral right
to life and to a liveable environment.
(d) Eco-feminists: Care for the natural environment: all things
have a right to exist.

Ethical Positions:

Anthropocentrism: Human centred morality. Only humans
have intrinsic value and moral standing. The rest of the natural
world has instrumental value (use to humans). We can best
protect nature by looking out for human needs.
(Ex: saving the rainforests will provide O2 and medicines for

Sentio-centrism: Sentient-being centred morality. All and only
sentient beings (animals that feel pain) have intrinsic value and
moral standing. The rest of the natural world has instrumental
value. Both humans and sentient animals have rights and/or
interests that must be considered.

Bio-centric Individualism: Life-centred morality. All and only
living beings, specifically individual organisms (not species or
ecosystems) have intrinsic value and moral standing. Humans
are not superior to other life forms nor privileged, and must
respect the inherent worth of every organism. Humans should
minimize harm and interference with nature: eat vegetarian
since less land needs to be cultivated.

Eco-centric Holism: ecosystem centred morality. Non-
individuals (the earth as an interconnected ecosystem, species,
natural processes) have moral standing or intrinsic value and
are deserving of respect. Individuals must be concerned about
the whole community of life/nature. Humans should strive to
preserve ecological balance and stability.

Patriarchal Dualisms: Justifies domination by men over Nature
and Women. Human, mind, rationality, and man are linked and
superior. Nature, body, feelings, and woman are linked, and

Ecofeminism: Rejects Patriarchal Dualisms. The domination of
nature by men is wrong (is similar to and related to the
domination of women by men). Must break the pattern of
"power over" relationships; will benefit both women and the
natural world.

Deep Ecology: Humans are deeply connected with nature. If
humans identify with nature, then taking care of the natural
world will become part of taking care of one's self.

Sitting Bull, 1877: Behold, my brothers, the spring has come;
the earth has received the embraces of the sun and we shall
soon see the results of that love! Every seed has awakened and
so has all animal life. It is through this mysterious power that
we too have our being and we therefore yield to our
neighbours, even our animal neighbours, the same right as
ourselves, to inhabit this land

Bioregionalism: Lead a simple life with local production of food
and other products by people that you know. Thus, increases
environmental awareness and caring while decreases

Chap 6: The Ethics of consumer protection

The risk translates into injury, death and high costs. Consumers
must also bear the costs of deceptive sales practices, shoddy
merchandise, and un-honored warranties. This chapter
examines ethical issues raised by product quality and

Markets and Consumer Protection (1)
Consumer safety is seen as a good that is most efficiently
provided through the mechanism of free market whereby
sellers must respond to consumer demands. If consumers want
products to be safer - must be willing to pay more for safer
products and shows preference for manufacturers of safe
products. Producers must build more safety into their products
or they risk losing customers to competitors. Market ensures
that producers respond adequately to consumers desires for

If consumers:
do not place a high value on safety
unwilling to pay for safety or
has no preference for safer products
Then it is wrong to push increased levels of safety down their
throat through government regulations. Such government
interference distorts markets, making them unjust,
disrespectful of rights and inefficient. Only consumers can say
what value they place on safety and they should be allowed to
register their preferences through free choices in markets and
not to be coerced by businesses or governments into paying for
safety levels they may not want.

The critics of this market approach respond that the benefits of
free markets are obtained with certainty only when markets
have the seven characteristics that define them:-
a) there are numerous sellers and buyers
b) everyone can freely enter and exit the market
c) everyone has full and perfect information
d) all goods in the market are exactly similar
e) there is no external costs
f) all buyers and sellers are rational utility maximizes
g) the market is unregulated

These characteristics are absent in consumer markets, focusing
especially on characteristics (c) everyone has full and perfect
information and (f). all buyers and sellers are rational utility
maximizes Markets are efficient only if participants have full
and perfect information about the goods they are buying.

Theories of ethical duties of manufacturers
Contract view places greater responsibility on the

Due care view places greater responsibility on the

Social cost view places greater responsibility on the
Contract View of Business Firms Duties to Consumers

The view that the relationship between a business firm and its
consumers is essentially a contractual relationship and the
firms moral duties to the customer are those created by this
contractual relationship.

Moral Duties to Consumers Under Contractual Theory (1)
Complying with the terms of the sales contract and
secondary duties (Duty to comply).
Disclosing the nature of the product (Duty of Disclosure).
Avoiding misrepresentation and (Duty Not to
Avoiding the use of duress and undue influence (Duty not
to Coerce).
Moral Duties to Consumers Under

Contractual Theory (2)

(1) Duty To Comply
The next basic moral duty that a business firm owns its
customers (under contract view) is the duty to provide
consumers with a product that lives up to those claims that the
firms expressly made about the product which led the
customers to enter the contract freely. Eg. Winthrop
Laboratories - marketed a painkiller that it advertised as non-
addictive. A patient using the painkiller became addicted to it
and died of overdose. Court found Winthrop liable for the
patients death because although it had expressly stated that
the drug as non addictive Winthrop Labs. had failed to live up
to its duty to comply with this express contractual claim
The express or implied claims that a seller might make about
the qualities possessed by the product range over a variety of
areas are affected by a number of factors.
The definition of product quality used here is : the degree to
which product performances meet predetermined expectation
with respect to : reliability, service life, maintainability, safety.

(a) Reliability
The probability that at product will function as the consumer is
led to expect that it will function.

(b) Service Life
The period of time during which the product will function as
effectively as the consumer is lead to expect it to function; Eg.
wear and tear: obsolescence (technological changes)

(c) Maintainability

The ease with which the product can be repaired and kept in
operating condition; Eg. warranty

(d) Product Safety
The degree of risk associated with using a product.

An agreement is not binding unless both parties to the
agreement knows what they are doing and freely choose to do
The seller who intends to enter to contract with a customer has
a duty to disclose exactly what the customer is buying and what
the terms of the sale are.
The seller has a duty to inform the buyer of any characteristics
of the product that could affect the customers decision to
purchase the product.
Moral Duties to Consumers Under Contractual Theory (10)

For Example: if the product the consumer is buying possesses a
defect that poses a risk to the users health or safety, the
consumer should be so informed.

Sellers should also disclose a products components or
ingredients, its performance characteristics, cost of operation,
product ratings and any other applicable standards.

Misrepresentation renders freedom of choice impossible
Misrepresentation is coercive
A person who intentionally misled, acts as the deceiver
wants the person to act and not as the person would freely
have chosen to act if the person had known the truth.

Free choice is an essential ingredient of a binding contract
intentionally misrepresenting the nature of a commodity is
The deception may be created by a verbal lie as when a
new model is described as new or may be created by a
gesture as when as unmarked used model is displayed
together with several new models.

Varieties of Misrepresentation
computer software or hardware manufacturer may market
a product it knows contains bugs without informing the
buyers of that fact.
Manufacturer may give a product a name that the
manufacturer knows will confuse with the brand name of a
higher-quality competing product (Microsoft).
A producer may solicit paid testimonials from
professionals who have never really used the product. Eg.
Slimming products, herbal products.


People act irrationally when under the influence of fear or
emotional stress.
When a seller takes advantage of a buyers fear or
emotional stress to extract consent to an agreement that
the buyer would not make if the buyer was thinking
rationally, the seller is using duress or undue influence to
An unscrupulous funeral director may skillfully induce guilt-
ridden and grief-stricken survivors to invest in funeral
services they cannot afford.
Entry into a contract requires freely given consent,
therefore the seller has a duty to refrain from exploiting
emotional states that induce buyers to act irrationally
against their best interests.

The Due Care Theory
The due care theory of the manufacturers duties to consumers
The view that because manufacturers are in a more
advantaged position, they have a duty to take special care to
ensure that consumers interests are not harmed by the
products that they offer them.
The doctrine of caveat emptor (buyer beware) is replaced
with the doctrine of caveat vendor (seller beware)

The due care view hold that because consumers must depend
on 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 and the buyer agrees to the disclaimer
(Exemption clause -reasonableness)

Due care must enter into:
the design of the product
the choice of reliable materials for constructing the product
manufacturing processes involved in putting the product
the quality control used to test and monitor production
warning, labels and instructions attached to the product

According to due care view, the manufacturer in virtue of a
greater expertise and knowledge, has a positive duty to take
whatever steps to ensure that when the product leaves the
plant it is safe as possible and customer has right to such

Producers Responsibilities According to Due Care Theory
Manufacturer should ascertain whether the design of an article
conceals any danger, whether it incorporates all feasible safety

devices, whether it uses materials that are adequate for the

purposes the product is intended to serve.
Manufacturer must conduct research and extensive tests to
uncover any risks that will be involved in employing the
article under various conditions of use.
This requires testing the product under different conditions
of consumer use and selecting materials strong enough to
stand up to all probable usages (Taguchi Methods)

Production manager should control the manufacturing
processes so as to eliminate any defective items, identify
any weaknesses that become apparent during production.
Ensure that shortcuts, substitution of weaker materials or
other economizing measures are not taken during
manufacture that would compromise the safety of the final
There must be adequate quality control over materials that
are to be used in the manufacture of the product and over
various stages of manufacture. (SPC, IPQC, Ishikawa

Manufacturer should fix labels, notices, or instructions on
the product that will warn the user of all dangers involved
in using or misusing the item, and that will adequately
guard the user against harm or injury. Eg. Poison labels on
pharmaceutical products.
Instruction should be clear and simple, and warning of any
hazards involved in using or misusing the product should be
clear, simple and prominent.
In case of drugs, manufacturers have a duty to warn
physicians of any risks or dangerous side effects that
research or prolonged use have revealed (Vioxx, Celebrex,
Lipobay, Phenylpropanolamine, Thalidomide)

The Social Costs View of Manufacturers Duties
The view that a manufacturer should pay the costs of any
injuries sustained through any defects in the product even
when the manufacturer exercised all due care in the design and
manufacture of the product and has taken all reasonable
precautions to warn users of every foreseen danger.
Manufacturer has a duty to assume the risks of even those
injuries that arise out of defects in the product that no one
could reasonably have foreseen or eliminated. This theory is a
strong version of the doctrine caveat vendor. Let the seller
take care.

Strict Liability (Absolute Liability)

A legal doctrine that holds that manufacturers must bear the
costs of injuries resulting from product defects regardless of
fault. The third theory formed the basis of the legal doctrine of
strict liability

The Social Cost View (1)
Manufacturer should pay the costs of all injuries caused by the
defect in a product even if exercised due care (Eg. Proton :
defects in the steering wheel) Argues that injuries are external
costs that should be internalized.

Manufacturer bear the external costs that results from these
injuries as well as the internal costs of design and manufacture
and all costs are internalized and added on as part of the price
of the product.

The Social Cost View (2)
Internalizing all costs in this way, will lead to a more efficient
use of societys resources:

First, because the price will reflect all the costs of producing
and using the artifact, market forces will ensure that the
product is not over produced and resources are not wasted on

Second, since manufactures have to pay the costs for the
injuries they will be motivated to exercise greater care and
reduce the number of accidents.

Criticism of the Social Cost View
Unfair to manufacturers since it forces them to compensate
unforeseeable injuries. Assumption that adherence to the social
cost view will prevent accidents is false.

By relieving consumers of the responsibility of paying for their
own injuries the social costs theory will encourage carelessness
in consumers

Leads to successful consumer lawsuits in cases where

manufacturers took all due care.