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Today’s Topics

Today’s Topics. Discuss the Corporation and the Consumer. The Corporation and the Consumer. Patterns of Production and Consumption Marketing Practices Consumer Protection and Defective Products. Why Should We Be Concerned About Patterns of Production and Consumption.

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Today’s Topics

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  1. Today’s Topics Discuss the Corporation and the Consumer

  2. The Corporation and the Consumer • Patterns of Production and Consumption • Marketing Practices • Consumer Protection and Defective Products

  3. Why Should We Be Concerned About Patterns of Production and Consumption • U.S. is less than 5% world population, yet consumes: 60% of the world’s beef 50% of the world’s gasoline 35% of the world’s electricity 80% of the world’s cocaine

  4. Can Business Justify Satisfying Such Demand? Is the Production that Feeds this Demand Morally Defensible?

  5. YES! The Theory of Consumer Demand--All Businesses do is Satisfy Consumer Desires.

  6. Galbraith Challenges the Use of Consumer Demand to Defend Production and Consumption Practices

  7. 2 Key Elements of Consumer Demand • Urgency of wants does not diminish as they are satisfied. • Wants originate in the consumer.

  8. The Second Point is Key--Wants MUST Originate in the Consumer

  9. If Production Creates the Wants it Satisfies, the Urgency of the Wants No Longer Justifies the Production p. 388

  10. Advertising and Sales Practices Show that Production Creates Demand • Advertising Expenditures for new products • Created desire for a new product • That demands can be synthesized, catalyzed and shaped shows that they are not very urgent (p. 389)

  11. Advertising Works Only in Conditions of Abundance (High Discretionary Income)

  12. The Dependence Effect • As society becomes increasingly affluent, wants are increasingly created by the processes by which they are satisfied. p. 389

  13. What Does an Affluent, Productive Society Produce? • Opulent supply of some goods, niggardly supply of others. • This difference causes social ills. • The dividing line is precisely the line between private consumer goods and public goods

  14. “Our wealth in privately produced goods is, to a marked degree, the cause of crisis in the supply of public goods. We have failed to see the importance, the urgent need, of maintaining a balance between the two.” p. 389

  15. Positive Thesis--A society that maintains a balance between the production of public and private goods is more efficient than one that does not.

  16. von Hayek--The Non Sequitor of the Dependence Effect • Wants originating in the consumer are few • Exogenous wants probably limited to food, shelter, sex • All other desires are instilled by production

  17. If the fact that people would not desire something if it were not produced proved that it was of little value, then the highest products of human endeavor would be of small value. p. 392

  18. Does von Hayek’s Argument Work? • Can von Hayek account for the origin of the arts? • Does von Hayek really address Galbraith’s concern?

  19. How do we Distinguish: • Rational Persuasion (good) • Manipulation (OK, but troublesome) • Coercion (bad)

  20. Marketing and Advertising as Relational Activities

  21. Marketing and Advertising as Relational Activities • A 4-place relation involving 2 parties, a product, and a purpose • ‘X’ advertises ‘Y’ to ‘Z’ in order that ‘W’ • We MUST specify the purpose

  22. What is the Goal of Marketing? • To sell more product

  23. What is the SOCIETAL Goal of Marketing? • To increase the likelihood and frequency of free and informed transactions in the marketplace. • Camenisch

  24. Do Contemporary Marketing Practices Reach this Goal? • Blatant deception is rare. • Partial truths that misrepresent are common. • “Hard facts” are pretty rare in advertising.

  25. Common Advertising “Hooks:” • Symbolic value • Sexually provocative campaigns • Shared values • Shared fears

  26. The Problem of Parity Products

  27. Parity Products are Virtually Indistinguishable from one Another • Soaps • Premium beers or sodas • Certain car models

  28. The Problem of Parity Products: • How Do You Market Products that are Identical From a Performance Perspective?

  29. Holley--Moral Evaluation of Sales Practices

  30. Do Moral Considerations Enter into Sales Transactions?

  31. Albert Carr Argues that they Do NOT: • Business is more like poker than church bingo • “Falsehood ceases to be falsehood when no one expects that the truth will be spoken.” • Business bluffing is like poker bluffing and not wrong.

  32. Holley Accepts Camenisch’s Goal for Marketing and Sales

  33. A Voluntary Transaction: • Both parties understand the transaction • Neither is compelled to enter the transaction • Both parties make rational judgments about costs and benefits • Compulsion isn’t much of a worry and Camenisch has addressed information

  34. Many Sales Tactics Are Designed to Overcome Rational Decision-Making Practices • Provide irrelevant or misleading information • Promote common reasoning errors • Appeals to guilt, emotion or fear

  35. Legitimate and Illegitimate Uses of Fear and Emotion • Illegitimate emotional appeals cloud one’s ability to make decisions based on genuine satisfaction of desires.

  36. Nestle’s and Marketing Infant Formula in the 3rd World • Mixed product using local, impure water supplies • Consumers must be able to read the instructions • Relatively expensive • False suggestion of health benefits (better than mother’s milk)

  37. Who Should Pay for Injuries Caused by Defective Products?

  38. 4 Approaches to Consumer Protection • Contract provisions

  39. Traditional View of Caveat Emptor--Let the Buyer Be Ware

  40. 4 Approaches to Consumer Protection • Contract provisions • Due Care

  41. The Manufacturer Should Exercise Due Care in the Design and Manufacture of Goods • Normal use • Instructions and abilities of likely consumers

  42. 4 Approaches to Consumer Protection • Contract provisions • Due Care • Government regulation

  43. Government Sets Standards for Safe and Marketable Products (FDA, FTC, OSHA) • Government Regulation is Cumbersome, Costly, Inefficient and Contrary to Free Market Principles

  44. 4 Approaches to Consumer Protection • Contract provisions • Due Care • Government regulation • Strict liability

  45. Manufacturer Is Strictly Liable for the Effects of Its Products on Consumers

  46. Contract Due Care Government regulation Strict liability Consumer 3rd Party (Socialism) Not clear, 3rd party Manufacturer (and then consumers) Who Pays With 4 Approaches:

  47. An Argument for Strict Liability • The issue here is Compensatory Justice • People should be made whole when they have been harmed • Even if there is no fault for the injury

  48. Compensatory Justice Is Based in the Notion of Equality of Opportunity that is Central to Free Enterprise

  49. Compensatory Justice Corrects a Disadvantaged Situation that Arises in the Normal Working of a Competitive System

  50. A Strict Liability Approach: • Will reduce accidents and injuries my forcing manufacturers to take greater care • Is most efficient because manufacturers are better able to distribute costs

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