chap 5 markets and consumer protection
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The Contract view of business FirmsDuties to Consumers.
The firms moral duties to the customer are
those created by this contractual relationship.
When a consumer buys a product the
consumer enters into a sales contract with
the business firm.
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The act of entering into contractinvolves
Both the parties to the contact must have full
knowledge of the nature of the agreementthey are entering.
Neither party should intentionally
misrepresent the facts .
Neither party to a contract must be forced to
enter the contract under pressure or
influence.
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1.The Duty to comply :
Reliability-the probability that a product will function
as the consumer is led to expect that it will function.
Service life-the period of time during which theproduct will function as the consumer is led to expect
it to function.
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Maintainability- the ease with which the
product can be repaired and kept inoperating condition.
Product safety- the degree of risk associated
with using a product.
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2.The Duty of Disclosure
The seller should disclose a products components,
characteristics, costs of operation, product ratings
and any other applicable standards.
The sales contract requires full information becausea sales contract is free only to the extent that the
buyer knows what alternatives are available.
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3. The Duty not to Misrepresent
Misrepresentation is coercive:
Sellers misrepresent a commodity when theyrepresent it in a way deliberately intended to
deceive the buyer into thinking somethingabout the product that the seller knows isfalse
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4. The Duty not to Coerce
When a seller takes advantage of a buyersfear or emotional stress to extract consent toan agreement that the buyer would not make
if the buyer were thinking rationally The seller should not take advantage of the
buyers gullibility , immaturity or ignorance.
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Problems with the contractual theory
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1. Manufacturers do not come in direct
contact with customers. Absence of agencybetween the manufacturer and the customer.
2. Disclaimers can often nullify the
contractual duty of the manufacturer.
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3.Laissez faire ideology gave birth to the
doctrine of caveat emptor. 4. Buyers and consumers do not possess the
same knowledge and expertise.
5.Information and procedure may be costly,
then it can not be called as free agreement.
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The Due Care Theory
The view that the manufacturers are in a
more advantageous position , they have dutyto take special care to ensure that
consumers interests are not harmed by the
products they offer is called the Due Care
Theory.
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The doctrine of Caveat emptor is replaced by
the doctrine of caveat vendor.
The duty to exercise Due care in:
Design
Production
Information.
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Problems with Due care theory
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No clear cut method to determine whether
Due care has been exercised.
Can the manufacturer detect the defect orrisk before the consumer?
Is the consumer willing to pay for theadditional risk reduction?
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The Social Costs View
The view that a manufacturer should pay the
costs of any injuries sustained through anydefects in the product, even when the
manufacturer of the product has taken all
due care.
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Strong version of the theory of Caveat
Vendor
This is the doctrine of strict liability, a legal
doctrine that holds that manufacturers must
bear the costs of injuries resulting from
product defects regardless of fault.
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Price will reflect the cost of the product so all
care would b taken to see that the product isnot over produced or resources are not
wasted.
Manufacturers will be motivated to avoid all
types of risks or dangers.
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An individual may not be able to sustain all
the expenses by himself.
Problems with this theory?
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It violates the canon of Compensatory
justice: Compensatory justice implies that aperson should be forced to compensate an
injury only if the person could have foreseen
and prevented the injury.
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The cost of injury is added to the product and
all consumers are made to pay.
It would lead to consumers carelessness.
High costs on Insurance Companies.
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However defenders of the social costs view
point out that the cost of consumer liabilitysuits are not very large.
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