Presentation is loading. Please wait.

Presentation is loading. Please wait.

TME 6.

Similar presentations


Presentation on theme: "TME 6."— Presentation transcript:

1 TME 6

2 Introduction Examples of Bridgestone/Firestone and Metabolife International clearly demonstrate, consumers are exposed daily to high levels of risk simply by using consumer products The risk translates into injury, death and high costs. Consumers must also bear the costs of deceptive sales practices, shoddy mechandise, and un-honored warranties. This chapter examines ethical issues raised by product quality and advertising TME 6

3 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 consumer’s desires for safety TME 6

4 Markets and Consumer Protection (2)
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. TME 6

5 Markets and Consumer Protection (3)
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 maximizers g) the market is unregulated TME 6

6 Markets and Consumer Protection (4)
These characteristics are absent in consumer markets, focusing especially on characteristics (c) and (f). Markets are efficient only if participants have full and perfect information about the goods they are buying. TME 6

7 Theories on Ethical Duties of Manufacturers
TME 6

8 Contract View of Business Firm’s Duties to Consumers
The view that the relationship between a business firm and its consumers is essentially a contractual relationship and the firm’s moral duties to the customer are those created by this contractual relationship. TME 6

9 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 Misrepresent). Avoiding the use of duress and undue influence (Duty not to Coerce). TME 6

10 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. TME 6

11 Moral Duties to Consumers Under Contractual Theory (3)
(1) Duty to comply Eg. Winthrop Laboratories - marketed a painkiller that it advertised as nonaddictive. A patient using the painkiller became addicted to it and died of overdose. Court found Winthrop liable for the patient’s 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 Carlill Vs Carbolic Smoke Ball TME 6

12 Moral Duties to Consumers Under Contractual Theory (4)
(1) DUTY TO COMPLY 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 :- a) reliability b) service life c) maintainability d) safety TME 6

13 Moral Duties to Consumers Under Contractual Theory (5)
(a) Reliability The probability that at product will function as the consumer is led to expect that it will function. TME 6

14 Moral Duties to Consumers Under Contractual Theory (6)
(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) TME 6

15 Moral Duties to Consumers Under Contractual Theory (7)
(c) Maintainability The ease with which the product can be repaired and kept in operating condition; Eg. warranty TME 6

16 Moral Duties to Consumers Under Contractual Theory (8)
(d) Product Safety The degree of risk associated with using a product. TME 6

17 Moral Duties to Consumers Under Contractual Theory (9)
(2) THE DUTY OF DISCLOSURE An agreement is not binding unless both parties to the agreement knows what they are doing and freely choose to do it. 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 customer’s decision to purchase the product. TME 6

18 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 user’s health or safety, the consumer should be so informed. Seller’s should also disclose a product’s components or ingredients, its performance characteristics, cost of operation, product ratings and any other applicable standards. TME 6

19 Moral Duties to Consumers Under Contractual Theory (11)
(3) THE DUTY NOT TO MISREPRESENT 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. TME 6

20 Moral Duties to Consumers Under Contractual Theory (12)
Free choice is an essential ingredient of a binding contract - intentionally misrepresenting the nature of a commodity is wrong. 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. TME 6

21 Moral Duties to Consumers Under Contractual Theory (13)
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. TME 6

22 Moral Duties to Consumers Under Contractual Theory (14)
(4) DUTY NOT TO COERCE People act irrationally when under the influence of fear or emotional stress. When a seller takes advantage of a buyer’s 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 coerce. TME 6

23 Moral Duties to Consumers Under Contractual Theory (15)
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. TME 6

24 The due care theory of the manufacturer’s 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) TME 6

25 The Due Care Theory (2) 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) TME 6

26 Due care must enter into:
The Due Care Theory (3) 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 together the quality control used to test and monitor production warning, labels and instructions attached to the product TME 6

27 The Due Care Theory (4) 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 assurance. TME 6

28 Producer’s Responsibilities According to Due Care Theory (1)
(1) DESIGN 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) TME 6

29 Producer’s Responsibilities According to Due Care Theory (2)
(2) Production 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 product. 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 diagram) TME 6

30 Producer’s Responsibilities According to Due Care Theory (3)
(3) INFORMATION 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. TME 6

31 Producer’s Responsibilities According to Due Care Theory (4)
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) TME 6

32 The Social Costs View of Manufacturer’s Duties (1)
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. TME 6

33 The Social Costs View of Manufacturer’s Duties (2)
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. TME 6

34 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 (Eg. Rylands v Fletcher) TME 6

35 Argues that injuries are external costs that should be internalized.
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. TME 6

36 The Social Cost View (2) Internalizing all costs in this way, will lead to a more efficient use of society’s 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 it. 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. TME 6

37 Criticism of the Social Cost View
Unfair to manufacturers since it forces them to compensate unforseeable 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. TME 6


Download ppt "TME 6."

Similar presentations


Ads by Google