Product Safety, Consumer Protection, & Deceptive Marketing Paul L. Schumann, Ph.D. © 2003 by Paul L. Schumann. All rights reserved.

Issues Consumer Protection Deceptive Marketing Consumer’s Right to Privacy

Consumer Protection Free market argument: Critics: Consumers get the product safety for which they are willing to pay Critics: Free market argument is false: Free market argument assumes consumers have full and perfect product information Consumers don’t have full and perfect product information, especially concerning product hazards

Consumer Protection Free market counter-argument: Critics: Market for product information: consumers pay for product information they value Critics: Market for product information ineffective: Consumers don’t know value of information until they see it, but then no point in paying for it Free-rider problem

Ethical Duties of Manufacturers Contract Theory Due Care Theory Social Costs Theory

Contract Theory Firm’s duties to customer created by contract with customer Explicit contracts Implicit contracts Contract creates duties

Contract Theory Duties Duty to comply: product must be reasonably safe for its intended use Consumer can bear risk if all 4 conditions met: They know the risk exists They can appraise the risk’s probability & severity They can cope with the risk They refuse to pay more to reduce the risk

Contract Theory Duties Duty of disclosure: disclose relevant facts Duty not to misrepresent: don’t mislead Duty not to coerce: don’t exploit fear, stress, gullibility, immaturity, or ignorance

Ethical Duties of Manufacturers Contract Theory Due Care Theory Social Costs Theory

Due Care Theory Buyers & sellers don’t meet as equals Sellers have better knowledge & expertise Buyers in vulnerable situation Seller has a duty to exercise due care to protect consumers from harm that the seller can reasonably foresee

Due Care Theory Seller should protect consumers by: Design Choice of materials Manufacturing process Quality control Warnings, labels, & instructions Failure by a seller to exercise due care is considered to be negligence

Ethical Duties of Manufacturers Contract Theory Due Care Theory Social Costs Theory

Social Costs Theory Strict liability Seller should bear all the costs when a consumer is injured by a product Product price now reflects all costs, including costs associated with consumer injuries Seller has incentive to protect consumers Costs spread across all users of the product

Social Costs Theory Critics: Not practical: insurance will become too expensive Reduces incentives for consumers to be careful

Ethical Duties of Manufacturers Contract Theory Due Care Theory Social Costs Theory

Product Liability Legal Issues Grounds for recovery: Warranty: product must be fit for its intended use Intentional misconduct: seller knew (or was reckless) that the product was defective and would cause injury in normal use Negligence: due care Strict liability: wild animals, known dangerous domestic animal, abnormally dangerous stuff

Issues Consumer Protection Deceptive Marketing Consumer’s Right to Privacy

Deceptive Marketing “Hype” or “puffery” is expected But deception is unethical We need guidelines to decide where to draw the line between hype and deception

Deceptive Marketing Guidelines Intent: Does the seller intend to get the audience to believe a falsehood? Knowledge: Does the seller know the claims are false? Actions: Does the seller take actions to get the audience to believe the falsehood? Audience Sophistication: Does the audience understand the claims made are not real?

Issues Consumer Protection Deceptive Marketing Consumer’s Right to Privacy

Consumer Privacy Companies may have access to lots of information about their customers Concern: that information might be misused Right to Privacy: right of a person to decide what information is collected about the person, who has access to the information, and how the information is used But a company has a need for some information about its customers

Consumer Privacy Guidelines to balance business needs against consumer’s right to privacy: Relevance: relevant business purpose Informing: consumers know Consent: consumers consent Accuracy: accurate information & correct errors Purpose: benefits consumer Recipients & security: ensure security