Ethics in marketplace

 Market: Is any forum in which people come together

for the purpose of exchanging ownership of goods and money.
 Competition: Is any rivalry between two or more

 Market Competition: But market competition

involves more than the rivalry between two or more firms

There are three models of describing three degrees of competition in the market:

1. Perfect Competition 2. Pure Monopoly

3. Oligopoly

 The goods being sold are so similar to each other. of buyers and sellers. quality and quantity of the goods being bought or sold.  No external party like government set the price.Perfect Competition  Perfect Competition has the following characteristics:  Large no.  All buyers and sellers can freely enter or exit the market. .

Free competitive markets also need:  A private property system  System of ownership  System of production .

.Equilibrium point: Is the point at which the supply and demand curves meet. so the amount buyers want to buy equals amount seller wants to sell and price buyers are willing to pay equals price seller are willing to take.

Moral Outcomes Of Perfectly Competitive Market  Achieve a certain kind of justice i.e.  Respect certain kind of moral standards. Capitalist justice.  Maximize utility in the form of market efficiency. .

Reason for downward sloping demand curve??  Principle of diminishing marginal utility .

price consumer pays equals the worth of goods.Ethics & perfectly competitive markets  Capitalist justice (receive the value of what you contribute) :- Seller’s point of view: at equilibrium point. 1. seller’s contribution is equal to the price 2. Buyer’s point of view: at equilibrium point. .

. 1. ( effective allocation) 2. Encourages to minimize amount of resources consumed in producing a commodity. Maximizes utility of buyer & seller by leading them to allocate. use & distribute their goods with perfect efficiency:Motivates firms to invest resources in industries where consumer demand is high. Distributes commodities in a way buyer‟s desire. ( efficient use of resources) 3.

 Respects the negative rights of buyers & sellers:1. ( negative right of freedom from coercion) . All have full knowledge. ( negative right of freedom of consent) 3. ( negative right of freedom of opportunity) 2. No single buyer or seller dominates. All are free to enter & leave.

Maximizes the utility of participants of markets. given the constraint of their budget.( ignore egalitarian justice) 2. Might diminish the positive rights of those outside ( who cannot compete) 4. Ignores & conflicts with the demands of caring. 1. 3. .Cautions Do not establish any other form of justice.

Prices above equilibrium & supply curve 5. Can extract monopoly profit .Monopoly Features:1. Quantity below equilibrium 4. High entry barriers 3. One seller 2.

Will the monopoly firm necessarily choose to maximize its profits????? .

Lack of respect for negative rights . Ethical weaknesses of Monopolies:1. Utility & Rights Unregulated monopoly markets fall short of these 3 values. Violation of capitalist justice 2.Monopoly competition: Justice. Economic inefficiency 3.

Easier for firms to unite ( & act as a single giant) 4. Not open but closed       instead of others sellers being able to "freely and immediately enter" other sellers are prevented from entering due to high start-up costs anticompetitive machinations of the oligopoly firms long-term contracts with buyers etc. 2.Oligopolistic Competition 1. . Exercise some influence over price 3. „Impure‟ market structures.

6. Not distributed but concentrated   instead of "numerous sellers. none of whom has a substantial share of the market" a few sellers have a near 100% share of the market .

g. Disney-Times-Warner .. Horizontal mergers: the chief cause of oligopolistic conditions  Horizontal merger : "unification of two or more companies that were formerly competing in the same line of business"  e. Daimler.

Negative (economic freedom) rights violations    others are prevented from entering the market sellers dictate terms buyers have no recourse . Negative impacts on economic utility   distributive inefficiencies productive inefficiencies 3.Ethical consequences 1. Violations of capitalist justice 2.

How do oligopoly industries affect the market?  Explicit Agreements  Tacit Agreements &  Bribery .

Manipulation of Supply:    firms agree to limit their production result in artificially induced shortages hence in artificially high prices .Explicit agreements 1. 2. Price –fixing: Firms agree secretly to set their prices at artificially high levels.

Tying Arrangements:  The seller agrees to sell to buyer only on condition that the buyer agrees to buy other products from the firm. Exclusive Dealing Arrangements:   firms sell to retailers on condition that retailers will not buy from certain other companies (contra openness) or will not sell outside of a certain geographical area (contra distribution) 4. .3.

5. Retail Price Maintenance Agreements: manufacturer sells to retailer only on the condition that they agree to charge the same set retail price for the goods.  Effects     diminishes competition between retailers removes competitive pressure on the manufacturer to lower prices decrease production costs .

Price Discrimination: charging different prices to different buyers for identical goods. .6.

Tacit Agreements: Price Leader is the firm recognized as the industry leader in oligopoly industries for the purpose of setting prices based on levels announced by that firm. .

Is the payment made to induce the payee to act in a manner contrary to the duties or responsibilities of their office? 3.Bribery Bribes can be used to secure the sale of products  Serve to shut out other sellers & hence. Is the offer of payment initiated by the payer? 2. are anticompetitive Ethical rules for bribery : 1. Are the nature and purpose of the payment considered ethically unobjectionable by the local culture?  .

 Alice is a Salesperson for Omega Corp. are competitors  Carol and Alice are both trying to sell to Cyclone  Penn‟s bid is better than Omega‟s bid  Alice offers Tom $1000 if he decides to award the deal to Omega  What makes this a bribe? .Bribery  Situation:  Tom is the Purchasing Manager for Cyclone Industries  Tom‟s job is to buy stuff for Cyclone  Carol is a Salesperson for Penn Corp. and Omega Corp.  Penn Corp.

Main Views of Oligopoly Power:  Do-nothing View  Antitrust View  Regulation View .

.Do-nothing View It is argued that although competition within industries has declined. 3. 1. 2. Large corporations are good particularly in light of the globalization of business that has taken place during recent decades. The economic power of any large corporation may be balanced and restrained by the “countervailing power” of other large corporate groups in society. it has been replaced by competition between industries with substitutable products.

with no price competition in concentrated industries. there is likely to be administrative discretion over prices. 2. . There is a positive correlation between concentration and profitability. If an industry is not atomistic with many small competitors. 4.Antitrust View Assumptions: 1. Concentration is due mostly to mergers. 3. Concentration results in recognized interdependence among companies.

which results in decrease in explicit and tacit . Concentration is aggravated by product differentiation and advertising.Assumptions 5. View: By breaking up large corporations into smaller units. There is oligopolistic coordination by signaling through press releases or other means. 6. higher levels of competition will emerge in those industries that are currently highly concentrated.

To ensure that consumers are not harmed by large firms. regulatory agencies and legislation should be set up to restrain and control the activities of large corporations.Regulation View Concentration gives large firms an economic power that allows them to fix prices and engage in other forms of behavior that are not in the public interest. .