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Chapter 6 Discussion: Ethics of Consumer Protection and Marketing

Paul L. Schumann, Ph.D.

2004 by Paul L. Schumann. All rights reserved.

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Markets & Consumer Protection


What is the free market argument for why

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

argument by pointing to information problems?


Why doesnt the market provide product information?

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Contract Theory
What is the duty to comply? All products involve some risks. How can we decide if it is a reasonable risk for consumers to bear?
Does the following violate the duty to comply?
Some hamburgers sold by a fast food restaurant are contaminated with E. coli bacteria. People who eat the hamburgers get sick: stomach cramps, vomiting, fever, and watery or bloody diarrhea. Some people experience life-threatening symptoms, including kidney failure, seizures, and stroke. Some recover completely, others suffer permanent health effects, such as kidney damage, and some die.
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Contract Theory
What is the duty of disclosure? Does the following violate the duty of disclosure?
Some people are very allergic to peanuts or things derived from peanuts. A food company uses peanut oil in its products. On the ingredient list, the company only lists vegetable oil without specifying peanut oil.

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Contract Theory
What is the duty not to misrepresent? Does the following violate the duty not to misrepresent?
An insurance salesperson rents a desk in a bank lobby; the salesperson does not work for the bank. The bank doors have decals that say Deposits guaranteed by the FDIC. The insurance salesperson is selling insurance that is not a bank account, and so is not guaranteed by the FDIC. The insurance salesperson puts up a sign on the desk that says Investments 5% Guaranteed. The guarantee is being made by the insurance company.
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Contract Theory
What is the duty not to coerce? Give an example of a high-pressure sales tactic that would cross the line and become coercion.

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Due Care Theory


What is the basis of due care theory?

What is a violation of due care theory?


How can a company exercise due care?

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Examples
Does the following violate contract theory,

or due care theory, or both?


A person is using a lawnmower. The grass gets

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

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Examples
Does the following violate contract theory,

or due care theory, or both?


An 81-year-old woman buys a cup of coffee

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

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Examples
McDonalds coffee case outcomes: Jury award:
Compensatory damages = $200,000 but reduced to $160,000 because jury decided customer was 20% at fault Punitive damages = $2,700,000 Total = $2,860,000

Judges decision:
Compensatory damages = $160,000 Punitive damages = $480,000 Total = $640,000

Final settlement: secret

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Social Costs Theory


What is social costs theory?

What is the utilitarian argument in favor of

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

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Marketing Ethics
What guidelines can we use to draw the line

between hype (puffery) and deception?


Example: A car company runs TV ads that

emphasize that a car can be leased for zero down.


On the basis of the ad, would you expect to have to write a check on the day you sign the lease contract? In fact, you would have to write a check for a $450 acquisition fee plus a security deposit plus the first months lease payment. Is the zero down claim in the ad deceptive?
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Consumer Privacy
What guidelines can we use to balance a

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

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Case: AIDS and Needles


How common are needle-stick injuries in

healthcare settings?
What are the possible adverse health effects of

a needle-stick injury?

What is the Safety-Lok Syringe? Why didnt more hospitals adopt the SafetyLok Syringe? What caused Becton Dickinson eventually to begin selling the Safety-Lok in all sizes and at lower prices?
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Case: AIDS and Needles


In general, what are the duties of

manufacturers and sellers according to Contract Theory?


What would be a hypothetical example of

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

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Case: AIDS and Needles


In general, what is required of

manufacturers and sellers according to Due Care Theory?


How can companies exercise due care?

Did Becton Dickinson violate Due Care

Theory?

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