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 doesn’t 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 McDonald’s. It spills on her lap. She
suffers third-degree burns, spends 8 days in the
hospital, and undergoes skin graft operations.
McDonald’s 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
 McDonald’s 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
• Judge’s 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 month’s 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
consumer’s 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 didn’t more hospitals adopt the Safety-
Lok 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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