What is Business Ethics?
Ethics can be described as a discipline that looks into how to behave in order to make sure our life is flourishing, successful, worth living and fulfilling.
Business ethics are the moral principles that act as guidelines for the way a business conducts itself and its transactions. In many ways, the same guidelines that individuals use to conduct themselves in an acceptable way – in personal and professional settings – apply to businesses as well.
Business ethics studies appropriate business policies and practices regarding potentially controversial subjects, including corporate governance, insider trading, bribery, discrimination, corporate social responsibility, fiduciary responsibilities, and much more. The law often guides business ethics, but at other times business ethics provide a basic guideline that businesses can follow to gain public approval.
An ethical business dilemma usually faced in businesses would be ‘unfair pricing’.
In commercial exchanges the main requirement of justice is that the price paid for a good be commensurate with its value. The main challenge this idea poses is how to determine the value of a good, what it is worth.
Prices can be unfair where the special situation of need of a party allows another party to demand a price higher than that prevailing in the market.
Unfair pricing situations could arise through the following:
- Monopoly or collusion
By acting together, oligopolistic firms can hold down industry output, charge a higher price, and divide up the profit among themselves. When firms act together in this way to reduce output and keep prices high, it is called collusion. It is illegal for firms to collude since collusion is anti-competitive behavior, which is a violation of antitrust law.
2. Ignorance of buyer
A non-linear pricing monopolist always prefers to sell to buyers with no private information about their tastes for the product if the marginal production cost is smaller than the marginal utility of consumption for all buyers.
3. Absence of market price
In this case, the buyer has been led to agree by substantial information differences or by a situation of special need.
The market price also reflects the expectations of all active participants in the market about circumstances that are expected to affect the future supply and demand of a good.
I have been in an unfair pricing situation during a trip to Dubai. I usually opt for a paid tour guide but on this occasion, I went to a local market without one. On my return I found out that I had bought most items for almost twice the price due to Ignorance of Buyer on my part.
Pricing in my opinion should not be based on costs only. Other factors such as market demand, competitors and external factors such as governments, social or economic conditions may have to be taken into account.
Some key factors that should be considered in fair pricing include:
- Costs
- Profits
- Market demand (market price)
- Competition
- Clients / Customers
- Economic conditions
- Government
References:
- Business Ethics Technical Notes No. 3 Fair Prices Nov 2006
- https://www.sciencedirect.com/science/article/abs/pii/S016517650500323X
- https://corporatefinanceinstitute.com/resources/knowledge/economics/market-failure/
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