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12.4 Consumers and Their Protections

Learning Objectives

  1. Delineate the issue of consumer protection from defective goods and services.
  2. Outline five conceptions of the consumer.
  3. Consider the ethics of consumer protection surrounding each conception of the consumer.

Google Search: Make Money on the Stock Market

One of the top results of a Google search for “make money on the stock market” links you to a page called 2stocktrading.com. It claims, “If you just follow my technique, then I guarantee you will be able to turn $2000 into $1.7 Million in just 1.9 years!”

People turn small amounts into large amounts fast on Wall Street. It happens every day. Many of those people, however, have spent years in school studying economics and business and then decades more studying data and preparing for a speculative opportunity. That studious patience may be a good way to find success, but it isn’t the 2stocktrading.com recommendation. According to them, “You don’t need to spend hours reading charts, doing technical analysis and stuff like that.”

So what do you do to prepare for sudden riches? You’ve got to buy a special book that they sell on the website. Then,

you follow 5 simple steps explained in the book. Within 10 minutes, you have found a stock trade that is bound to make you money in any market condition…Go make coffee. Have a little breakfast. And wait for the market to open…Call your broker to place an order.

That’s it…Your job is done for today.

Trust me.

Of every one hundred people who read the pitch from 2stocktading.com in this business ethics textbook, how many do you think will take a second to check out the site? And of that group, what percentage will actually spend some time reading through the whole page? And of that group, which percentage will end up sending in money?

Everybody would like to know the answer to that last question for this reason: everyone has been ripped off, and afterward, everyone has looked at themselves and asked, “Well, was it my fault?” Sometimes the answer is disagreeable, and it’s comforting to know that at least some people out there—like the ones sending in money to 2stocktrading—are even more gullible.

The business ethics surrounding the consumer mainly concerns gullibility, mistreatment of the consumer, and responses to the mistreatment. The questions are about how much freedom consumers should have to spend their money and how much responsibility suppliers should take for their goods and services. One way of organizing the answers is by considering five conceptions of the consumer, five ways of arranging the rights and responsibilities surrounding the act of spending money:

  1. The wary consumer
  2. The contracting consumer
  3. The protected consumer
  4. The renegade consumer
  5. The capable consumer

The Wary Consumer

Caveat emptorA Latin phrase translating as “let the buyer beware.” As a doctrine, it means the consumer alone is responsible for the quality of the product purchased. is Latin; it translates as “Let the buyer beware.” As a doctrine, caveat emptor means the consumer alone is responsible for the quality of the product purchased. If, in other words, you send your money to 2stocktrading.com and you end up losing not only that but also the cash invested in disastrous stock choices, that’s your problem. You don’t have any claim against this particular get-rich-quick scheme. And if you don’t like the results, that only means you should have been a more careful consumer.

The doctrine of caveat emptor entered the American legal lexicon in 1817 (Laidlaw v. Organ). Since then, the legal tide has flowed in the other direction: toward consumer protection and the idea that offering a good or service for sale is also, implicitly, the offer of some kind of guarantee. If a product doesn’t do what a reasonable person expects, then there may be room for a legal claim against the seller.

On the ethical front, caveat emptor sits at one extreme of the buyer-seller relation. It’s what you have when you buy a used car marked As Is. Even if it’s a lemon, you’re stuck with it. As far as justifying this view of the consumer and mounting an argument that our economic life ought to be organized by the idea that when buyers hand over their money, they get their item and nothing else, there are several routes that may be followed:

  • Caveat emptor maximizes respect for the consumer. By placing all responsibility in the consumer’s hands, a high level of dignity and freedom is invested in those who buy. It’s true that when there’s a rip-off, there’s no recourse, but it’s also true that the consumer is allowed to make decisions based on any criteria he or she sees fit. The case of 2stocktrading.com is a good example. Reading about the scheme, it’s normal to be tempted to say, really, these guys shouldn’t be allowed to advertise their service. What they’re claiming is clearly untrue (if their stock-picking system really worked so well, they’d spend their time picking stocks, not trying to sell other people ideas about how to pick stocks). And it’s true that were consumers banned from sending money in, more than a few would be better off. But do we really want a society like that, one where we don’t get to make our own choices, even if they’re bad ones? A critical component of showing respect for others is allowing them to mess up. It’s worth, the argument closes, allowing those mess ups if what we get back for them is consumers endowed with the dignity of making their own decisions.
  • Another argument justifying caveat emptor is that it maximizes a certain kind of economic efficiency. When deals are done, they’re done and everyone moves on. This allows two kinds of savings. First, there are no expensive lawsuits where everyone pays and mainly lawyers walk away with the cash. Second, though it’s impossible to put a number on the cost, it’s certain that a huge amount of resources are devoted in our economy today to warnings and similar that are meant to protect companies against consumer claims of fraud and abuse and lawsuits. Take, for example, the TV ads we see for prescription drugs. Sometimes it seems like half the airtime is devoted to reciting warnings and complications associated with the medication. In a world of pure caveat emptor, those kinds of efforts could be minimized because sellers wouldn’t have to worry so much about getting sued. With respect to ethics, finally, it may be possible to argue here that maximizing economic efficiency is also the best way to maximize a society’s happiness, and if it is, then the doctrine of caveat emptor is sanctioned by utilitarian theory.

On the other side, there are also solid ethical arguments against envisioning consumers as protected only by their own wariness.

  • An ethics of care sets the maintenance of a community—of its relationships and unity—as the highest value. If that’s the final definition of good, if what we seek in the business world is smooth and continuing cooperation everywhere along the line from the production to the sale and finally to the use of products, then it’s difficult to see how sellers could wash their hands after a transaction, or why buyers would be restrained from complaining when things don’t work out the way they were supposed to.
  • In our society, an ethics based on virtue also stands against the caveat emptor model of consumption. Proponents of virtue ethics typically cite senses of fairness and civility as key components of a good ethical life. If they are, it seems clear that customers who don’t receive what they honestly thought they were getting should be listened to and compensated, not ignored and spurned.

In conclusion, caveat emptor envisions consumers as free and empowers them to do as they wish. However, by freeing sellers to be as unscrupulous as they like, it may create an economic society that seems more savage than civil.

The Contracting Consumer

The contractual view of the consumer sees transactions as more than a simple passing of money one way and a good or service the other. The transaction is also the creation of an implicit contractAn unwritten agreement formed between sellers and buyers as a function of their transaction.. It’s true that nothing may be written on a piece of paper or signed, but the contract’s terms may nonetheless be deduced from the transaction itself. In order to begin deducing, the nature of a contractual relationship should first be summarized in general form. Entering into a contract implies the following three requirements:

  1. Freedom. Neither party may be forced into the agreement. One of the memorable scenes from the Godfather movies involves the mafia’s attempt to win a movie role for young Frank Sinatra. The Hollywood executive resists the casting, until he wakes up one morning with the severed head of his favorite horse in his bed. A contract is quickly sent out. That’s not a true story, but it’s an example of entering a contract under duress. A more subtle violation of contractual freedom occurs on the 2stocktrading web page. If you scroll to the bottom you find the price of the product is about $200, but if you buy immediately you’re eligible for a half-price discount. The aim here is to limit the consumer’s freedom to think things through before entering into a purchasing contract by forcing a yes-no decision right now.
  2. Information. Both buyers and sellers must have reasonably complete knowledge of the agreement they together enter. The issues here range from simple to complicated. If the price, for example, is set in dollars, does that mean US dollars or the Canadian version? More thorny would be the question as to what exactly you receive when you send in your money to 2stocktrading.com. They claim you’ll get the stock-picking secrets, but what exactly does that mean? Is it a textbook in economics, a subscription to the Wall Street Journal, a crystal ball? If you go through the company’s web page carefully, you get the idea that a set of books will be mailed your way, but again, exactly how these books convey secret knowledge is harder to see.
  3. Honesty. Both sides have to tell the truth. Consumers who send in checks must have money in their accounts. Sellers who promise stock tips that will make you rich must, in fact, send you good stock tips.

The vision of the consumer as entering a contractual relationship essentially moves ethical questions into the legal realm. What’s morally right or wrong becomes a matter of contract law, and decisions made on the ethical front loosely parallel those that would be taken in the courts.

The ethical work that needs to be done here occurs in the deduction of exactly what terms and clauses make up the implicit contract as it’s implied by the circumstances of the agreement. In the field of law, of course, we know what the contract’s terms are because they’re actually spelled out on a piece of paper. In the case of the contractual view of the consumer, it will be necessary to start with a specific ethical theory, and move from there to the conceiving of an agreement entered into by both sides.

An ethical theory of traditional duties, which values honesty highly, may move all the claims made on the 2stocktrade.com web page directly over to the implicit contract. If, it follows, the people selling the stock-picking service say you’ll get rich in two years by following their recommendations and you follow them and you don’t get rich, the sellers have not fulfilled their contract. Both economically and ethically, they haven’t held up their end of the bargain. At this point, the concept of an implied warrantyWhat consumers may claim from sellers if the good or service fails to meet expectations, as those expectations are defined by an implicit contract. activates. An implied warranty, just like an implicit contract, elaborates what consumers may claim from sellers if the good or service fails to meet expectations. In this case, one where the implicit contract guaranteed wealth, it seems obvious that consumers who don’t make any money should get their original purchase price back. They may also be able to claim that any money lost on the stock market should be refunded because it was invested underneath the assumption that it would produce a gain. At the outside extreme, they might be able to demand the wealth they were supposed to receive for their investments.

Looking at this situation differently—which means using a different ethical theory to produce the terms of an implicit contract between 2stocktrading.com and a consumer—a culturalist ethics may not be quite so stringent. A culturalist ethics accords right and wrong with the habits and customs of a society. And in America today, there’s a common understanding that in a free market, sellers are sometimes going to get a little overenthusiastic about their products. Of course consumers have a right to expect some truth from advertisements, but there’s also an agreement that exaggerations occur. In this case, the implicit contract would require that stock-picking tips actually be delivered, but it might not require that the people who use them actually get rich or make any money at all. If, in other words, reasonable people in our society who read the web page don’t come away believing they’ll really rake in the cash by using the stock-picking techniques, then the implicit contract arising between seller and buyer doesn’t include that guarantee.

Regardless of how the implicit contract—and consequent implied warranty—are construed, there’s a significant disadvantage to this approach: ambiguity. Law firms earn their entire income by disputing what written contracts actually mean in the real world. If even perfectly explicit and signed agreements between buyers and sellers don’t yield easy determinations about the obligations imposed on the two sides, then answering those questions for implicit contracts, ones where nothing is written, is going to be tremendously difficult. The theory of the consumer as entering a contractual relationship with the seller certainly makes sense, but in practice, it may not help resolve problems.

The Protected Consumer

Most economic transactions don’t threaten grave losses even when they go wrong. You buy a half gallon of milk at the grocery store, bring it home, and find the package was slightly punctured so the milk is curdled. You buy a pen and no ink flows. You pay for a nice haircut and get butchered. These kinds of economic hiccups occur all the time, and the defects normally don’t matter too much. The defect definitely does matter, however, when you buy a car and a design error causes the gas pedal to get stuck, leading to wild, unbreakable speeding and entire families dying in flaming wrecks. While it’s unclear how many people have been victims of Toyota’s gas pedal manufacturing error, it has become stuck at full acceleration on multiple occasions and has caused real human suffering completely incomparable with the kinds of petty losses typical consumers absorb every day.“Toyota to Replace 4 Million Gas Pedals After Crashes,” Fox News, November 25, 2009 accessed June 2, 2011, http://www.foxnews.com/us/2009/11/25/toyota-replace-million-gas-pedals-crashes.

Another important aspect of buying a Toyota, or any car, is that it’s a complex transactionA transaction where the seller is not the fabricator of the good being sold.. That means there’s a large distance between the individual who actually takes your money, and the people in faraway plants who physically made the car. In the case of 2stocktrading.com, it may well be that the people who invented the stock-picking system get the money directly when you hit the Internet “Buy” button. A car, however, is typically purchased in a dealership from a salesman who may not even know where the car he’s selling is made. Even if he does know, he certainly can’t tell you where all the components came from. In today’s interconnected world, more and more products are like cars—they’re composed of parts that come from all over the place and then they’re shipped halfway across the country (or the world) for sale by people who have nothing to do with any design or manufacturing flaws.

These two factors—the possibility of severe injury coupled with the difficulty in locating who, exactly, is to blame—support the proposal that in some cases ethics may not be enough to protect consumers. Legal protections with sharp teeth could work better. These protections generally move along two lines: manufacturer liability and government safety regulation.

Manufacturer liabilityThe consumer right to sue manufacturers for injuries caused by a defective product. is the consumer right to sue manufacturers—and not just the local dealership with which a sales contract is signed—for injuries caused by a defective product. As for specific types of defects incurring liability suits, there are three:

  1. Design defects are errors in the product’s blueprint. The physical manufacturing, in other words, may be perfect, but because the design isn’t, consumers may be harmed.
  2. Manufacturing defects are part of the production process. In this case, a product may be generally safe but dangerous in a specific instance when it comes off the assembly line missing a bolt.
  3. Instructional defects involve poor or incomplete instructions for a product’s safe use. The product may be designed and built well, but if the instructions tell you it’s OK to use the blow-dryer in the shower, there could be problems.

The legal origin of manufacturer liability is MacPherson v. Buick Motor Company. In that 1916 case, Donald MacPherson was injured when his Buick veered out of control. A defective wheel caused the accident, one that Buick purchased from another company. Buick argued that they weren’t liable for MacPherson’s injury for two reasons: a quasi-independent dealership, not Buick itself, sold the car, and Buick didn’t even make the wheel that failed. The court ruled against both arguments. The result was a concept of legal liability extending beyond explicit contracts and direct manufacturing: the concept of due careThe conception of manufacturers as being in a position to understand the potential dangers of their products and therefore as obligated to take precautions to ensure quality and safety. recognizes that manufacturers are in a privileged position to understand the potential dangers of their products and have, therefore, an obligation to take precautions to ensure quality. Those obligations remain in effect regardless of who ultimately sells the product and no matter whether a subcontractor or the larger corporation itself made the defective part.

Over the last century, the notion of due care has strengthened into the legal doctrine of strict product liabilityThe doctrine that manufacturers are legally liable for product defects no matter how much care may have been taken to prevent them.. This holds that care taken by a manufacturer or supplier—no matter how great—to avoid defects is immaterial to court considerations of liability. If a product is defective and causes harm, liability claims may be filed no matter how careful the manufacturer had been in trying to avoid problems.

Proponents of these legal protections argue that social welfare is improved when companies exist under the threat of serious lawsuits if their products cause damage. Critics fear that liability suits can be unfair: companies may act in good faith to produce safe products, but nonetheless fail, and be forced to pay massive amounts even though they took all precautions they honestly believed necessary.

Government safety regulationLegal measures and actions taken by governments to protect consumers. is the second main legal route toward a protected consumer. As is the case with liability protection, government regulation has expanded over the last century. Key moments include the establishment of the National Highway Traffic Safety Administration in 1970 and the Consumer Product Safety Commission in 1972. These federal agencies are charged with advocating for consumers by imposing regulations, and then enforcing them through the agencies’ legal arms. In actual practice, the agencies frequently act in cooperation with manufacturers to ensure public safety. For example, when news broke that Toyota gas pedals were sticking, causing runaway vehicles, the NHTSA pressured Toyota to redesign the gas pedal and then recall the malfunctioning vehicles to have their pedals replaced.“Toyota Announces Fix for Gas Pedal Sticking Problem,” US Recall News, November 26, 2009, accessed June 2, 2011, http://www.usrecallnews.com/2009/11/toyota-announces-fix-for-gas-pedal-sticking-problem.html.

Regulatory action resembles the extension of liability protection in that proponents believe the measures serve the social welfare. People live better when governmental forces work to ensure protection from defective products. Almost inevitably, the argument in the background is a version of utilitarianism; it’s that the ethical good equals whatever actions serve the public welfare and happiness. If society as a whole lives better with strict regulations in effect, then imposing them is good.

Critics fear that the cost of these regulations may become burdensome. In straight economic terms, an argument could be mounted that the dollars and cents spent by corporations in their attempts to comply with regulations are actually superior to the social cost of letting some defective goods out into the marketplace. There’s a possibility, here, to meet advocates of regulation on their own ground by claiming that at least in monetary terms, society is better off with less regulation, not more. It’s much easier, however, to put a price tag on the cost of complying with safety rules than it is to measure in terms of dollars the cost of injuries and suffering that could have been avoided if more stringent safeguards had been in place. (Of course, if you happen to be one of those few people who gets a seriously defective item—like a car that speeds out of control—then for you it’s pretty clear that the regulations are recommendable no matter the cost.)

Another argument cautioning against regulatory action is that bureaucratic overreach threatens legal paternalism. Legal paternalismThe doctrine that government regulators must restrict citizen marketplace freedoms in order to serve the citizens’ interest. is the doctrine that, just as parents must restrict the freedom of their children in the name of their long-term welfare, so too regulators in Washington, DC (or elsewhere) must restrict the freedom of citizens because they aren’t fully able to act in their own self-interest. One simple example is the seatbelt. In the late 1960s, federal action required the installation of seatbelts in cars. Subsequently, most states have implemented laws requiring their use, at least by drivers. Society as a whole is served by these regulations insofar as injuries from traffic accidents tend to be reduced. That doesn’t change the fact, however, that people who are alone in their cars and presumably responsible for their own welfare are being forced to act in a way they may find objectionable. Parallel discussions could be followed on the subject of motorcycle helmets, bicycle helmets, and similar.

Conclusion. Liability lawsuits against manufacturers, together with government regulations, protect consumers from dangerous goods and services. The protections cost money, however, and regulations may seem intrusive or condescending to some buyers.

The Renegade Consumer

The best defense can be a good offense. That’s probably the idea the owner of a chronically breaking-down Range Rover had when he parked his car on a public street in front of the dealership where he bought it and pasted bold letters on the side announcing that the car is a lemon. Probably, the display put a dent in the dealership’s business.“Range Rover Owner Advertises Faults On Lemon Parked Outside Dealer,” Jalopnik, June 3, 2009, accessed June 2, 2011, http://jalopnik.com/5277286/range-rover-owner-advertises-faults-on-lemon-parked-outside-dealer.

It was work and sacrifice for the car owner, though. Whoever it was had to hatch the plan and then go out and buy stick-on lettering to spell the message on the Range Rover’s side. Then it was necessary to give up use of the car for the duration of the protest. (It also might have been necessary to constantly plug a parking meter with coins.) Regardless of the cost, the renegade consumerThe buyer who goes outside the system of contractual and legal safeguards to respond to defective goods and services. seeks justice against product defects by going outside the system. Instead of making ethical claims against producers based on the idea of an implicit contract, and instead of seeking refuge underneath governmental protection agencies, this kind of buyer enters a no-holds-barred battle against (perceived) dirty sellers.

Parking a car marked lemon in front of the dealership that sold it is an old—and potentially effective—maneuver. Today’s social media, however, allows newer strategies with possibly higher impacts and less inconvenience. One example is Ripoff Report, a website allowing consumers to post complaints for all to see. Browsing the page, it takes only a moment to grasp that the site compiles more or less unedited consumer rebellions. There are stories of being gypped by department stores, robbed by banks, defrauded by plumbers, and nearly everything imaginable. People can add their own comments, and a convenient search box allows anyone to get a quick check on any company they may be considering doing business with. The website’s tagline, finally, is very appropriate. It reads, “Don’t let them get away with it. Let the truth be known!”Ripoff Report home page, http://www.ripoffreport.com.

These two sentences correspond well with the two ethical categories into which the renegade consumer naturally falls:

  • The imperative “don’t let them get away with it” fits the conception of the renegade consumer as acting in the name of retributive justice.
  • The imperative “let the truth be known!” fits the conception of the renegade consumer as a consumer advocate.

Retributive justicePrincipled revenge taken against those who have wronged you. proposes that it’s ethically recommendable to seek revenge against those who have wronged you. “You cost me time, money, and trouble,” the logic runs, “and now I’ll return the favor.” The notion is probably as old as humanity, and it appears in many of history’s oldest texts. (The Bible’s Matthew 5:38 contains the proverbial “An eye for an eye and a tooth for a tooth.”)

Two aspects of retributive justice are significant. First, there’s a strong sense of proportionality in the idea. The code isn’t “A life for an eye” because the goal of retributive justice is to make things even again; it’s to restore a balance that was there before the problematic transaction. Retributive justice is a theory of proportional revengeWithin the marketplace ethics of retributive justice, the principle that the cost imposed on sellers of defective goods should be comparable with the consumer’s loss.. In the case of the lemon Range Rover, it seems about right that a dealership that refuses to fix (or replace or refund) a client’s defective car should in turn see losses to its business that approximately equal the money they save by mistreating consumers. The second point to make about the notion of retributive justice is that it fits within and is a subset of the duty to fairness. What drives retributive justice is a notion that the two sides of an economic exchange should be treated in the same way, equally.

These two characterizations of retributive justice are important because they separate the calculated act of vengeance from being nothing more than a blind and angry outburst. It’s normal when we’ve been wronged to want to simply strike out at the one who’s mistreated us. Probably, there’s a good bit of that anger behind the Range Rover owner and many of the rip-off reports. What makes those acts also ethically respectable, however, is their containment within the rules of proportionality and the duty to fairness.

The renegade consumer can also find an ethical slot in the category of consumer advocateWithin the marketplace ethics of retributive justice, the justification of consumer revenge against sellers of defective goods as protecting other consumers.. When the Ripoff Report asks contributors to let the truth be known, reports are enlisted not as individuals seeking revenge but as wronged consumers performing a public service. Here, the rule of fairness is not in effect; instead, it’s the utilitarian idea of the general good. If what ought to be done is just that which brings the greatest happiness to the greatest number, then the public calling out of car dealerships that don’t stand behind their product becomes a public utility or good. Renegade consumers become consumer advocates when they help others avoid their fate.

Conclusion. Renegade consumers are the mirror image of caveat emptor consumers. Both place extremely high levels of responsibility in the hands of the buyer. The difference is that the caveat emptor vision places that entire responsibility in the consumers’ buying judgment and so disarms them: it places an ethical restriction against consumer complaints because the entire transaction process is wrapped in the idea that before anything else the consumer should be wary about what’s being purchased. Renegade consumers also take full responsibility, but their obligations come at the end of the process, not the beginning: they rebalance the scales after a seller tries to get away with taking money for a defective product. Instead of swallowing their loss, renegade consumers act to make sure that the seller who cheated them pays a price.

The Capable Consumer

The capable consumer is a free market ideal. The combined economic-ethical notion underneath it is that business functions most smoothly—and thus produces quality of life at a maximum pace—when consumers play their marketplace role efficiently. Their marketplace role is to use purchasing decisions to reward good companies, ones that produce better goods at a lower cost, while penalizing those companies producing inferior goods. As successful companies grow, and as poor performers fall away, the general welfare improves: products do their jobs more satisfyingly, and people gain more disposable income for pleasure spending (because necessities will be less expensive). If, finally, right and wrong in the economic world is about bringing the greatest good and happiness to the most people, then the marketplace economy supports this moral demand: a society should do everything possible to perfect the consumer. The perfected consumer is

  • able,
  • informed,
  • free,
  • rational.

The able buyer is sufficiently experienced to manage marketplace choices. Just about everyone has been taken in at one point or another by unrealistic promises like those made on the 2stocktrading.com web page. The difference between the incapable and the capable is the ability to learn; it’s a kind of acquired instinct that sets off warning signals when an offer sounds too good: it might be too good to be true. Specifically on the stock-picking deal, able consumers don’t need to carefully study the whole spiel before realizing that, probably, the best thing to do is close the web page.

The informed buyer is sufficiently knowledgeable about a specific product category to make a good purchasing choice from within the various options. Different types of items, of course, require different levels of expertise. Making a good decision about a garage door opener is much easier than making a good decision about a car because the latter is so much more complicated and filled with highly specialized components. For example, Dodge spends a lot of time lauding their cars and trucks as including a hemi, but not many people understand what the actual benefits of that feature are. In fact, many people don’t even know what a hemi is. It’s always possible, of course, to learn about the intricacies of car engines, but in the real world of limited time, qualifying as an informed buyer requires only one of these two skills: either you know a lot about what you’re buying, or you learn which sources of information can be trusted. The search for a trustworthy source may lead to Consumer Reports magazine or Ripoff Report or something else, but the result should be a purchasing decision guided by real understanding.

The free buyer has choices. No amount of education about car quality will help anyone who only has one product to select. Most consumer items, however, do provide choices—abundantly. Standing in front of the shelves in any supermarket shows that the ideal of the consumer as free is, to a large extent, satisfied in our society. Still, there are exceptions. Cable TV and phone services can be limited in certain areas, as can electricity providers and sanitation services.

Rational buyers use their experience and information to make good choices. For the qualities of the ideal consumer to cash out, they must be orchestrated by careful thought. Of course this hardly seems worth mentioning in the abstract. All buyers are perfectly rational when they’re reading a textbook section about buying. It’s easy to be cold and analytical sitting on a sofa. The problem comes when the actual buying is happening. Dealers use all kinds of tricks and techniques to get consumers to, at least momentarily, suspend their good judgment and leap. One of the most common is the disappearing deal, which can be found on the 2stocktrading.com site and almost inevitably appears in the car buying experience. The salesman always has some special opportunity that you can get now, but if you wait until tomorrow, well.…Sometimes the claim is that there’s a sale on, but it’s ending tonight. Or there’s only one left in stock and another customer has been asking about it. The salesman shakes his pen at you and pushes the contract across the desk and the car right behind him is gleaming and new and in those moments the capable consumer is the one who takes a deep breath.

Conclusion

Most ethical questions surrounding consumers are about how much freedom they should have to spend their money. In the case of the wary consumer—the caveat emptor buyer—freedom is maximized, but the dealer takes no responsibility for what’s sold. In the cases of the contracting, protected, and renegade consumer, buyers sacrifice some of their freedom in return for the guarantee that if a good is defective, they’ll have some recourse against the dealer. In many cases, the freedom that consumers lose is minimal or even positive (most people are happy to not be free to buy a lemon car).

It’s inescapably true, however, that when you force dealers to stand behind what they sell, there are goods and services that they won’t bring to market. This newspaper story, for example, relates how it came to pass that holiday season cookie makers in California had to make do one December without those little silver ball sprinkles that frequently decorate the season’s cookies. A crusading lawyer had decided the balls might be harmful, and the threat of a lawsuit caused the item to be removed from store shelves.Carol Ness, “Bay Area Faces Holidays Without Little Silver Balls on Baked Goods,” San Francisco Chronicle, December 23, 2003, accessed June 2, 2011, http://articles.sfgate.com/2003-12-23/news/17524040_1_dragees-holiday- cookies-silver-balls. Probably, most people were able to enjoy their holiday celebrations just fine without the sprinkles, but the stakes go up when drug manufacturers are forced to consider pulling effective diabetes drugs like Avandia off the market because of a discovery that it may increase the risk of heart attacks.Andrew Clark, “Relief for GlaxoSmithKline as US Regulators Reject Ban on Avandia,” Guardian, July 15, 2010, accessed June 2, 2011, http://www.guardian.co.uk/business/2010/jul/15/glaxosmithkline-avandia-fda-expert-committee.

Key Takeaways

  • Wary consumers are safeguarded from defective goods and services only by their own caution. They enjoy maximum freedom in the marketplace and suffer minimal protection.
  • The contracting consumer is protected from defective goods and services by the affirmation that their purchase is also an implicit contract with the seller guarantying quality similar to expectations.
  • The protected consumer is safeguarded from defective goods and services by liability lawsuits and governmental regulatory action.
  • The renegade consumer takes individual action to penalize sellers whose products fail to meet expectations.
  • The capable consumer minimizes the need for buyer protection while maximizing a market economy’s efficient functioning.

Review Questions

  1. What does caveat emptor mean?
  2. What are some purchases that are typically made within a consumer ethics of caveat emptor?
  3. What is an implicit contract? How is it created from a particular transaction?
  4. What are the two main ways that consumers are backed up by legal protections?
  5. How do renegade consumers create protections against defective products?
  6. What characteristics make up a capable consumer?