December 20, 2011

Business System - Free Markets - Ethics

Free market system may have variety of competitive market systems depending on the product life cycle and competitive situation in a product market (industry). Perfect competition, oligopoly, duopoly, and monopoly are some of the types.

Perfect competition

In a perfectly competitiive market, there are numerous buyers and sellers and none of them will have sizeable market share. Entry and exit of buyers and sellers is free. In a perfectly competitive market, prices and quantities always move toward the equilibrium point.

Velasquez wrote, perfectly competitive free market achieves or satisfies three moral criteria: Justice, Utility and Rights.

Capitalist criterion of justice: Benefits and burdens are distributed justly when a person receives in return at least the value of the contribution he or she made to an enterprise. Fairness is getting paid fully, in return for what one contributes. It is this form of justice (capitalist criterion of justice) that is achieved in perfectly free competitive markets.

Monopoly

Unregulated monopoly markets can fall short of the three values - capitalist justice, economic efficiency, and respect for negative rights that perfect competitive markets achieve.

Oligopoly

Oligopoly also can result in shortfall of the three values: capitalist justice, economic efficiency, and respect for negative rights that perfect competitive markets achieve. In oligopoly markets price-fixing, manipulation of supply, exclusive dealing arrangements, tying arrangements, retail price maintenance arrangements, price discrimination are identified as unethical practices.



References

Manuel G. Velasquez, Business Ethics: Concepts and Cases, Fourth Edition, Prentice Hall Inc., Upper Saddle River, N.J., 1998, Business Ethis by Manuel G. Velasquez - Book Information and Review

First published in
http://knol.google.com/k/narayana-rao/free-or-competitive-markets-and/2utb2lsm2k7a/1720#

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