LawStudy 7 | - Student
May 09, 2019 | #1
Introduction
Within the context of the post-Enron age, intense scrutiny of multinational corporations (MNCs) has been sourced from visible, unethical behavior in conjunction with the mounting power wielded by businesses within the global marketplace. Utilitarian ethics has a wide spectrum of implications for the business environment, with capitalist markets particularly and inextricably bound to utilitarian perspectives (Cleveland, 2000). Price-fixing represents a heatedly debated issue within capitalist markets, with recent legal changes reflecting a level of unprecedented tolerance for the agreement between two or more firms on the price at which a product or service should be consistently offered to consumers (Jones and Turner, 2010). Economic behavior represents a critical aspect of human nature. From a utilitarian perspective, the economic behaviors of individuals should be undergirded with the assumption that all individuals share a mutual interest in such behaviors. More specifically, all human beings have an interest in garnering the highest return for their resources. If price-fixing was ethical according to a utilitarian framework, then the practice would need to lead, more often than not, to most economic players garnering the highest possible return on their resources. This inquiry argues, however, that this is irrefutably not the case, with price-fixing generally not yielding the greatest benefit for the greatest number of individuals. Moreover, price-fixing can easily be associated with alternative manifestations of unethical outcomes.
A capitalist economy is supported by individuals who share a common goal; that is to fulfill their own self-interest. Cleveland asserts that "on this foundation, economists have made significant headway in explaining not only much of what takes place in trading relationships, but also in developing the model of supply and demand as an extremely useful tool for predicting the outcomes of various changes in important variables" (p. 87). Utilitarianism, originally formalized by John Stuart Mill and Jeremy Bentham during the 1800s, assumes ethical behavior yields the greatest good for the greatest number of people. From an economic perspective, the greatest good is linked to monetary gain, with corporations representing large-scale mechanisms for achieving this gain. The context of the global marketplace and emerging trends therein, however, has raised questions relatively to utilitarianism and what outcomes truly constitute the greater good.
The same forces which have prompted increase ethical scrutiny of firms' accounting practices, namely glaring instances of ethical violations and the exponentially increasing power of the corporation, have served to shape the corporate social responsibility (CSR) movement. The CSR movement is grounded in the notion that competitive advantage must be sustainable, with short-term financial gains insufficient in promoting the needs of multiple stakeholder groups. From a utilitarian perspective, by extension, it is not merely the financial dimension which must reflect the greater good for the greatest number of people; it is the social and environmental dimensions which must reflect these outcomes as well.
Price-fixing represents an agreement regarding the price at which a product or service will be bought or purchased; this agreement must be between parties who are on the same market side in order for it to truly be reflective of price-fixing, with the goal being to control both supply and demand through the practice of fixing prices. From a utilitarian perspective, price fixing could be rationalized in that the ultimate goal is to drive prices to the highest possible level in order to yield the most profits. In turn, those within the price-fixing agreement mutually benefit from the resultant price stabilization. A wide range of additional practices are associated with price-fixing, including list pricing, discount limitations, and creating general market barriers to anything which would threaten the fixed price (Jones and Turner, 2010).
However, price-fixing is unethical according to utilitarian assumptions because while the practice may be ethical in theory, it is not ethical in practice. From a neo-classical and natural law perspective, price-fixing does not permit the necessary competition within the capitalist market; this, in turn, creates an operating environment controlled by a limited number of people. The greatest good for the greatest number of people is achieved only by permitting free market competition (Cleveland,2010). The legal environment regarding price fixing has shifted within the United States during recent years, with the Sherman Antitrust Act previously the only relevant legislation which would allow for those engaging in price-fixing to be prosecuted. During the late 1990s, state Supreme Courts began distinguishing between vertical and horizontal price fixing, with the former type of price-fixing practice referring to retail price-fixing; the United States Supreme Court cited that the Sherman Act was not violated through vertical price fixing, though horizontal price fixing was still prosecutable by law. Jones and Turner (2010) describe this decision as follows:
In mid-2007, the U.S. Supreme Court overturned a 1911 precedent prohibiting manufacturers from setting prices at the retail level. That earlier decision put resale price maintenance (vertical price fixing) into the category of "per se" violations of the Sherman Act. Per se violations cannot be justified by findings of benefits to competition. The 2007 Leegin decision moved such cases into the other category under the Sherman Act: the rule of reason. Under this category, proof of a violation is often very difficult because of the type of evidence required. Such cases rarely succeed, with the effect that manufacturers can now set retail prices (p. 89).
The authors argue that the Supreme Court decision was an unfortunate one that will lead to increasingly blurred lines between horizontal and vertical price-fixing, with monopolies inevitably emerging in the coming years, particularly within the retail market.
Conclusions
While the global marketplace is evolving to no longer define economic activities purely in terms of economic benefit but also in terms of social and environmental outcomes, it remains that price-fixing will ultimately continue to support a very limited number of stakeholders. Blurred ethical lines might emerge if price-fixing could be demonstrated in some instances to preserve environmental resources or protect vulnerable populations in some way. There is, however, no evidence that this is occurring thus far, with the literature suggesting that price-fixing actually harms consumers by limiting their choices and forcing them to pay higher prices (Jones and Turner, 2010). Jennings posits that price-fixing is essentially a red-flag behavior that is indicative of a corporation's potential for compromising its ethics in general and potentially driving itself out of business. From a utilitarian perspective, business practices must yield the greatest good for the greatest number of people, with price-fixing clearly doing more harm than good, benefiting only a small number of market players.
REFERENCES
Cleveland, P. A. (2000). Economic Behavior: An Inherent Problem with Utilitarianism. Journal of Private Enterprise, 16(1), 81-90.
Jennings, M. M. (2006, Summer). The 7 Signs of Ethical Collapse What Makes a Good Company Go Bad? Recognising and Remedying the Warning Signs of Ethical Collapse Can Help Prevent Accounting Scandals and Restore Market Trust. European Business Forum, (25), 32-45.
Jones, B. J., & Turner, J. R. (2010). The Fall of the per Se Vertical Price Fixing Rule. Journal of Legal, Ethical and Regulatory Issues, 13(2), 83-91.
Within the context of the post-Enron age, intense scrutiny of multinational corporations (MNCs) has been sourced from visible, unethical behavior in conjunction with the mounting power wielded by businesses within the global marketplace. Utilitarian ethics has a wide spectrum of implications for the business environment, with capitalist markets particularly and inextricably bound to utilitarian perspectives (Cleveland, 2000). Price-fixing represents a heatedly debated issue within capitalist markets, with recent legal changes reflecting a level of unprecedented tolerance for the agreement between two or more firms on the price at which a product or service should be consistently offered to consumers (Jones and Turner, 2010). Economic behavior represents a critical aspect of human nature. From a utilitarian perspective, the economic behaviors of individuals should be undergirded with the assumption that all individuals share a mutual interest in such behaviors. More specifically, all human beings have an interest in garnering the highest return for their resources. If price-fixing was ethical according to a utilitarian framework, then the practice would need to lead, more often than not, to most economic players garnering the highest possible return on their resources. This inquiry argues, however, that this is irrefutably not the case, with price-fixing generally not yielding the greatest benefit for the greatest number of individuals. Moreover, price-fixing can easily be associated with alternative manifestations of unethical outcomes.
Utilitarian Ethics and the Global Business Environment
A capitalist economy is supported by individuals who share a common goal; that is to fulfill their own self-interest. Cleveland asserts that "on this foundation, economists have made significant headway in explaining not only much of what takes place in trading relationships, but also in developing the model of supply and demand as an extremely useful tool for predicting the outcomes of various changes in important variables" (p. 87). Utilitarianism, originally formalized by John Stuart Mill and Jeremy Bentham during the 1800s, assumes ethical behavior yields the greatest good for the greatest number of people. From an economic perspective, the greatest good is linked to monetary gain, with corporations representing large-scale mechanisms for achieving this gain. The context of the global marketplace and emerging trends therein, however, has raised questions relatively to utilitarianism and what outcomes truly constitute the greater good.The same forces which have prompted increase ethical scrutiny of firms' accounting practices, namely glaring instances of ethical violations and the exponentially increasing power of the corporation, have served to shape the corporate social responsibility (CSR) movement. The CSR movement is grounded in the notion that competitive advantage must be sustainable, with short-term financial gains insufficient in promoting the needs of multiple stakeholder groups. From a utilitarian perspective, by extension, it is not merely the financial dimension which must reflect the greater good for the greatest number of people; it is the social and environmental dimensions which must reflect these outcomes as well.
Price-Fixing: An Overview
Price-fixing represents an agreement regarding the price at which a product or service will be bought or purchased; this agreement must be between parties who are on the same market side in order for it to truly be reflective of price-fixing, with the goal being to control both supply and demand through the practice of fixing prices. From a utilitarian perspective, price fixing could be rationalized in that the ultimate goal is to drive prices to the highest possible level in order to yield the most profits. In turn, those within the price-fixing agreement mutually benefit from the resultant price stabilization. A wide range of additional practices are associated with price-fixing, including list pricing, discount limitations, and creating general market barriers to anything which would threaten the fixed price (Jones and Turner, 2010).
However, price-fixing is unethical according to utilitarian assumptions because while the practice may be ethical in theory, it is not ethical in practice. From a neo-classical and natural law perspective, price-fixing does not permit the necessary competition within the capitalist market; this, in turn, creates an operating environment controlled by a limited number of people. The greatest good for the greatest number of people is achieved only by permitting free market competition (Cleveland,2010). The legal environment regarding price fixing has shifted within the United States during recent years, with the Sherman Antitrust Act previously the only relevant legislation which would allow for those engaging in price-fixing to be prosecuted. During the late 1990s, state Supreme Courts began distinguishing between vertical and horizontal price fixing, with the former type of price-fixing practice referring to retail price-fixing; the United States Supreme Court cited that the Sherman Act was not violated through vertical price fixing, though horizontal price fixing was still prosecutable by law. Jones and Turner (2010) describe this decision as follows:
In mid-2007, the U.S. Supreme Court overturned a 1911 precedent prohibiting manufacturers from setting prices at the retail level. That earlier decision put resale price maintenance (vertical price fixing) into the category of "per se" violations of the Sherman Act. Per se violations cannot be justified by findings of benefits to competition. The 2007 Leegin decision moved such cases into the other category under the Sherman Act: the rule of reason. Under this category, proof of a violation is often very difficult because of the type of evidence required. Such cases rarely succeed, with the effect that manufacturers can now set retail prices (p. 89).
The authors argue that the Supreme Court decision was an unfortunate one that will lead to increasingly blurred lines between horizontal and vertical price-fixing, with monopolies inevitably emerging in the coming years, particularly within the retail market.
Conclusions
While the global marketplace is evolving to no longer define economic activities purely in terms of economic benefit but also in terms of social and environmental outcomes, it remains that price-fixing will ultimately continue to support a very limited number of stakeholders. Blurred ethical lines might emerge if price-fixing could be demonstrated in some instances to preserve environmental resources or protect vulnerable populations in some way. There is, however, no evidence that this is occurring thus far, with the literature suggesting that price-fixing actually harms consumers by limiting their choices and forcing them to pay higher prices (Jones and Turner, 2010). Jennings posits that price-fixing is essentially a red-flag behavior that is indicative of a corporation's potential for compromising its ethics in general and potentially driving itself out of business. From a utilitarian perspective, business practices must yield the greatest good for the greatest number of people, with price-fixing clearly doing more harm than good, benefiting only a small number of market players.
REFERENCES
Cleveland, P. A. (2000). Economic Behavior: An Inherent Problem with Utilitarianism. Journal of Private Enterprise, 16(1), 81-90.
Jennings, M. M. (2006, Summer). The 7 Signs of Ethical Collapse What Makes a Good Company Go Bad? Recognising and Remedying the Warning Signs of Ethical Collapse Can Help Prevent Accounting Scandals and Restore Market Trust. European Business Forum, (25), 32-45.
Jones, B. J., & Turner, J. R. (2010). The Fall of the per Se Vertical Price Fixing Rule. Journal of Legal, Ethical and Regulatory Issues, 13(2), 83-91.