Ethics in the Marketplace

WHAT IS A MARKET?
A market is a forum where people come
together to exchange ownership of goods;
goods or services are bought and sold.
Market consists of
a) Buyer
b) Seller,
c) Place(Physical/Digital)
d) Medium of Exchange
 Three Models of Market Competition
• Perfect competition
• A free market in which no buyer or 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 entering.
• Oligopoly
• A market shared by a relatively small number of large firms that
together can exercise some influence on prices.
 MARKETS AND MORALS
Consider the following Issues:
➢A $92 Prison Cell upgrade for convicts
➢ The services of an Indian Surrogate Mother to carry a
pregnancy: $6250 (In India it is a Rs 15000 crore
Industry mostly used by the rich and poor women).
➢Rent out a space on your forehead to display the
commercial ad: $ 777
➢Fight in Ukraine on behalf of EU/US for $1000 per
day;
➢Buy the life insurance policy for an ailing elderly
person at a lumpsum, pay the annual premiums, and
then collect the death benefits when he or she
dies;($30 Billion industry)
 From Having a Market Economy,
to Being a Market Economy
From the Market being a tool, it becomes a way of life as
we start setting prices for everything.
Market principles at homes: Can we set a price for the :
➢Mother’s ‘service’ overnight when you are suffering from high
fever?
➢Brother’s fight to protect you from bullies;
➢The price of homemade food prepared by Mom;
➢Father’s extra work to cover your tuition fees;
➢Sister’s efforts to help you when you had an accident;
 Moral Limits of Market
• Market Triumphalism has its moral limits.
• Everything has a value in life, but not necessarily a market-
determined price.
• Example: Life insurance makes ‘life’ a tradeable commodity
• TWO PRINCIPLES:
a) Fairness
b) Corruption
CHARACTERISTICS OF A PERFECTLY COMPETITIVE MARKET
• A perfectly (1) Numerous buyers and sellers;
competitive free (2) Free entry/exit for buyers and
market is one in sellers;
which no buyer or (3) Every buyer and seller has full
and perfect knowledge;
seller has the power (4) The goods being sold are similar
to significantly affect (5) The costs and benefits of
the prices at which producing or using the goods are
goods are being borne by buyers /sellers;
exchanged. (6) All buyers and sellers are utility
• Seven defining maximizers.
features: (7) No external parties (such as
the government) regulate the price,
quantity, or quality of any of the
goods being bought and sold in the
market.
Moral Basis of Perfectly Competitive Markets

• Achieve capitalist justice, but not other kinds of justice like

justice based on need.
• Satisfies a certain version of utilitarianism (by maximizing
the utility of market participants but not of all of society)
• Respect some moral rights (negative rights but often not
positive rights); e.g. right to face the same price without
discrimination.
• Ensures some justice to treat everyone equally with
respect;
• But does not prevent the more capable to grow at the cost
of others. More resourceful to have still more resources.
• This is a Utopia- an ideal state that doesn’t exist.
 Characteristics of Monopoly Markets
• One dominant seller controls all or most of the market’s product, and
there are barriers to entry that keep other companies out.
• Seller has the power to set the quantity and price of its products on
the market.
• Seller can extract monopoly profit by producing less than the
equilibrium quantity and setting a price below the demand curve but
high above the supply curve.
• High entry barriers keep other competitors from bringing more
products to the market.
 Ethical Weaknesses of Monopolies
• Violates capitalist justice.
• charging more for products than the producer knows they are worth
• Violates utilitarianism.
• keeping resources out of monopoly market and diverting them to
markets without such shortages
• removing incentives to use resources efficiently
• Violates negative rights.
• forcing other companies to stay out of the market
• letting monopolists force buyers to purchase goods they do not want
• letting monopolists make price and quantity decisions that consumer is
forced to accept
Oligopolistic Markets: Run by a Cartel of a Few
Definitions
• Run by a few firms who collude;
• Major industrial markets are
dominated by only a few firms.
• Oligopolistic markets are
“imperfectly competitive”
because they lie between the
two extremes of the perfectly
competitive and monopolistic
markets.
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.
 Ethical Issues on Effects of
Oligopoly
• Exclusive Dealing Arrangements: firms sell
to retailers on condition
• Price fixing: managers meet (secretly) &
and agree to set prices at an artificially high o that retailers will not buy from certain
level. other companies (contra openness)

o or will not sell outside of a certain

• Manipulation of Supply: firms agree to
geographical area (contra distribution)
limit their production

o results in artificially induced shortages • Tying Arrangements: the seller agrees to

sell to the buyer only on condition that the
o hence in artificially high prices buyer agrees to buy other products from the
firm.

• Retail Price Maintenance Agreements: The

manufacturer sells to the retailer only on
the condition that they agree to charge the
same set retail price for the goods
 Effects of Oligopoly
Effects:
• Price Discrimination: charging different
▪ diminishes prices to different buyers for identical
goods.
competition between o Price differences are legitimate only when based
retailers on

▪ removes competitive ▪ volume differences

pressure on the ▪ other differences related to true costs of
manufacturer to
▪ manufacturing
▪ lower prices ▪ transporting

▪ decrease ▪ packaging
production costs ▪ marketing

▪ servicing
INDIA’S CEMENT INDUSTRY 2023
• Oligopolistic market, dominated
by two major players, Aditya
Birla Group(Ultratech) and
Adani Group--41.5% of the
cement market controlled by
Aditya Birla Group and Gautam
Adani Group. 56.5% by four
major groups- Shri
cement(Bangur) and Dalmia
Bharat, if added.
• Low threat of substitutes
• Cement industry
produces 375 million
tonnes in 2023 growing at
the rate of 6.8% .
• National infrastructure
pipeline (PIP)projects
rupees 102 Lakh crores
Which will require more
cement.
 Imaginary Situation

There is a rumour that Gautam Adani Group

has offered to buy two more cement producers
with a huge premium over the market price to
emerge as the market leader. The group is said
to be negotiating a large credit line from a
consortium of Public Sector Banks on goodwill
for such predatory buying.
 Now answer any of the following two
questions: Marks 5 (will count towards final internal marks )

Q1.What characteristics of the cement market for

operating systems do you think created the oligopolistic
market for Adanis and Birlas in India? Evaluate this
market in terms of utility, rights, and justice.
or
Q2. Who, if anyone, is harmed by the sort of market that
Indian cement industry trends display? What kind of
public policies, if any, should we have to deal with such
issues?