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

2. Issues Consumer Protection Deceptive Marketing
Consumer’s Right to Privacy

3. 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

4. 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

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

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

7. 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

8. 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

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

10. 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

11. 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

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

13. 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

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

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

16. 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

17. Issues Consumer Protection Deceptive Marketing
Consumer’s Right to Privacy

18. 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

19. 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?

20. Issues Consumer Protection Deceptive Marketing
Consumer’s Right to Privacy

21. 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

22. 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