ETHICS IN THE

MARKETPLACE
Group 7 Group 8
Nadhira Azzah (411413) Farah Ayu (411408)
Sheila Dewani (415861) Gabriela Kidney (415853)
PERFECT
COMPETITION
WHAT IS IT?
no buyer or seller has the power to significantly
affect the prices at which goods are being
exchanged
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E
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FEWER GOODS
PRICE INCREASES
AVAILABLE

MORE GOODS
PRICE DECREASES
AVAILABLE

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Equilibrium Point

● The amount of goods buyers want to

buy = The amount of goods sellers
want to sell
● The highest price the buyers are
willing to buy and the lowest price the
sellers are willing to take
DEMAND CURVE

■ The price rises above their demand curve, buyers

would see themselves as losers—that is, as
paying out more for the product than what it is
worth to them.
■ The price below the demand curve, they would
see themselves as winners—that is, as paying out
less for a product than what it is worth to them.
■ Principle of diminishing marginal utility
The principle that generally each additional unit
of a good a person consumes is less satisfying
than each of the earlier units the person
consumed.
SUPPLY CURVE

● If prices fall below the supply curve, producers

will tend to leave the market and invest their
resources in other, more profitable markets.
● If prices rise above the supply curve, then new
producers will come crowding into the market,
attracted by the opportunity to invest their
resources in a market where they can derive
higher profits than in other markets
● Principle of increasing marginal costs
The principle that after a certain point, each
additional unit a seller produces costs more to
produce than earlier units.
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3 Major Moral Values

■ Justify : Lead buyers and sellers to exchange their

goods in a way that is just
■ Utility : Maximize the utility between buyers and sellers
by leading them to allocate, use and distribute their
goods effectively
■ Rights : They bring about this achievements in a way
that respect buyers and sellers right of free consent

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Justice

The capitalist meaning of justice

■ Benefits and burdens are distributed justly when individuals receive in return at
least the value of the contribution they made to an enterprise
■ Perfectly competitive free markets embody capitalist justice because such markets
necessarily converge on the equilibrium point, and the equilibrium point is the one
(and only) point at which buyers and sellers on average receive the value of what
they contribute.

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Utility

■ A market system is perfectly efficient when all goods in all markets are allocated,
used, and distributed in a way that produces the highest level of satisfaction
possible from these goods
■ A system of perfectly competitive markets achieves such efficiency in three main
ways :
1. a perfectly competitive market system motivates firms to invest resources in those
industries where consumer demand is high and to move resources away from
industries where consumer demand is low.
2. Perfectly competitive markets encourage firms to use resources efficiently to keep
costs low and profits high.
3. Perfectly competitive markets let consumers buy the most satisfying bundle of
goods, so they distribute goods in way that maximizes utility.

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RIGHTS

■ Perfectly competitive market respects right to freely

choose the business one enters.
■ In perfectly competitive market, exchanges are
voluntary so respect rights of free choice.
■ In perfectly competitive market, no seller exerts
coercion by dictating prices, quantities, or kinds of
goods consumers must buy.

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Several cautions when interpreting moral features

1. Perfectly competitive free markets do not establish other forms of justice

2. competitive markets maximize the utility of those who can participate in the
market given the constraints of each participant’s budget
3. May diminish the positive rights of those outside (those, for example, who cannot
compete) or of those whose participation is minimal.
4. Fourth, free competitive markets ignore and can even conflict with the demands of
caring.
5. Free competitive markets may have a pernicious effect on people’s moral
character.

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MONOPOLY
COMPETITION
■ One dominant seller controls all or most of the
market’s product
■ High entry barriers keep other competitors from
bringing more product to the market
■ Seller has the power to set quantity and price of its
products on the market
■ Seller can extract monopoly profit by producing
less than equilibrium quantity and setting price
below demand curve but high above supply curve
Example of Monopoly Markets
 Ethical Weaknesses of Monopoly

● Violates Capitalist Justice

● Violates Utilitarianism
● Violates Negative Rights
OLIGOPOLY
COMPETITION
 Oligopolistic Market

Characteristics
● Highly concentrated markets
● “Impure” market structure
● Horizontal Merger
How it Affect Customers
● Like monopoly markets, it can result in the same high prices and low supply
levels
● can fail to exhibit fair prices, can generate a decline in social utility, and can fail
to respect basic economic freedoms
Unethical Practices in Oligopolistic
Markets
● Price-fixing
● Manipulation of supply
● Market allocation
● Bid rigging
● Exclusive dealing arrangements
● Tying arrangements
● Retail price maintenance
agreements
● Predatory price discrimination.
● Bribery
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 Fraud Triangle

Pressure

Opportunity Rationalization
Tacit Agreements
Some oligopoly industries will recognize one firm as
the industry’s “price leader”

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OLIGOPOLIES AND
PUBLIC POLICY
Trust VS Antitrust

Trust
An alliance of previously
competitive oligopolists
formed to take
advantage of monopoly
powers.
Sherman
Antitrust Act
Federal law passed in
1890 that prohibits
competitors from getting
together to reduce
competition or using
monopoly power to keep
or expand a monopoly.

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Why there is an antitrust act?

Bullied
Ground Monopolized
farmer that
down crucial
industries stock raw
competitors
material

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 ● Do Nothing

Main Views on ● Antitrust View

Oligopoly Power
● Regulation View
The Do-Nothing view

■ Nothing should be done about the economic power held by the oligopoly
corporation.
■ power of large oligopoly corporations is actually not as large as it may
first appear.
■ Example: Steel industry competing with aluminium or cement industry.

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The Antitrust View

■ Large monopoly and oligopoly firms are anticompetitive and should be

broken up into small companies.
■ The benefits of antitrust view: decrease in explicit and tacit collusion,
lower prices for consumers, greater innovation, and the increased
development of cost-cutting technologies.

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The Regulation View

■ Big companies are beneficial but need to be restrained by government

regulation.
■ Big companies should not be broken up.

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Thanks!
Any questions?
■ Elrica: what makes it different if the small companies
are owned by the same person?
■ Steven: if there is a sherman act, why do monopoly still
exists
■ Ghea: can monopoly justify ethical issue?
■ Donggu: gas station - monopoly

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