chap 5 markets and consumer protection

8/8/2019 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.

chap 5 markets and consumer protection

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