Business Ethics and Legal Issues
Abstract
The gist of this paper is to investigate business ethics and legal issues, and how they shape business activities in the marketplace. When a firm becomes large enough it can easily gain monopoly power in a given market. Monopoly power may bring ramifications both to consumers and other smaller competing firms in an industry. The paper analyses dynamics in business environment basing argument on the analyses of two cases: A large pharmaceutical firm preventing smaller firms in the industry from introducing cheaper substitutes of its drug into the market, and the effects of a merger of two giant telecommunication companies. The two cases produce ethical dilemmas and problems to the business environment.
The multinational pharmaceutical company would like to stymie generic competition mainly to maximize profits. The fact that there will be no alternative for the drug would ensure that its brand dominates the market. All consumers in the market will be prescribed for the drug, due to the move the multinational to thwart substitutes from its competitors from entering the market. Market dominance will in turn lead to high sales volume by the multinational and consequently higher profits will be realized when all the other factors are held constant. Profit maximization is the main goal of every business organization; therefore, this is the main reason why the company would want to prevent substitutes from entering the market.
Another reason why the company would make a move to block or delay entry of substitutes into the market is to achieve market leadership in the long run. Market leadership will ensure that the company is vested with the ability to control the market of the antidepressant in the long run; entry of substitutes in the market, which is characteristic of the long run period, will not affect its revenue. The prices of generic alternatives will be based on the price of its drug in the market. In addition, the company will be able to lower its prices relative to those of its competitors because it will already be enjoying economies of scale.
Legal barriers inherent in market entry include high costs of license and permit fees. This occurs especially when leading firms in the market have secured trademarks and copyrights for certain brands. To discourage overproduction in such sectors, the controlling authority may charge high fees for licenses and permits for starting such business. This increases the capital endowment necessary for starting such business makes it difficult for entrepreneurs to delve in the sectors, Fahri (2002).
Ethical dilemmas in business environment arise when there are grey areas between no and yes. There is no absolute dismissal or acceptance of certain situations, Cohen (2007). One of the ethical dilemmas that present itself is whether it is really right in business to apply legal action in assisting firms to enter a market initially dominated by the pioneer. Assisting competitors to enter the market by legal action sounds like forcibly encroaching into the larger business’s stronghold. This is worth considering because the multinational holds the original property rights of the brand and realistically there may be loss of market share by the old firm in the short run owing to the provision of cheaper substitutes by the competitors.
A case similar to this may arise when Eli Lilly of the U.S wants to produce a cheap substitute to Pfizer’s Zoloft. It would be an ethical dilemma to legally determine if this would be favorable for Pfizer since it is the pioneer for the brand and the consumers.
In this case where there has been agreement for a merger between two major telecommunication companies, consumer advocacy units are in the right move to express dissatisfaction. This is because the merger would definitely become the leader in the telecommunication industry. Consumers could suffer from this in several ways. First, because of its market leadership no consumer would like to remain in any other network but to move into the new wider network. After luring all the consumers, the merger may raise prices for its services under the knowledge that it will be hard for consumers to move from its network, because otherwise they will move alone, consequently they may rise off net services to make consumers stick with their network because it is the widest. Also depending on dominance on different services by the merged companies, consumers may pay high prices, and receive poor services due to low level of competition, Pine (1992).
In addition to paying dearly for services, the other pitfall for consumers is poor quality of services that they may receive henceforth. Being the leading company in the market, the merger may be hesitant in provision of quality services to the consumers, Chris (2001). This is because it will be sure of having the largest market share. In order to maximize profits, the merged companies may decide to offer cheap poor quality services to customers, which it can, do successfully and still maintain its client base. The consumers are in danger of being served by a monopoly should the companies merge; monopolies offer poor quality service due to their market dominance and because of limited competition, which decreases creativity and innovation, Kolar (2004). The ethical dilemmas that arise in this situation is whether there could be use of legal frameworks to prevent the two companies from merging, this is because they will be practicing their corporate rights. An attempt to stop the merger will be an infringement on their corporate rights, yet allowing the merger to go on will definitely have detriments on consumers in future. Such a merger would include Vodafone and Airtel; this would ruin the market because consumers may be in danger of receiving lesser quality products than before. It would also be difficult for smaller firms in the industry to survive in the market.
Conclusion
When a major firm competes with relatively smaller firms in the market, both the smaller firms and the consumers are at danger. The dangers to the consumers are in terms of poor quality of goods and services that may be receive from the monopoly, and secondly is the high prices that they may have to pay for goods and services owing to the dwindling competition. Similarly, a merger between two major companies increases their monopoly powers. This is detrimental to consumers in terms of poor quality of goods and services and the high prices they pay for them. There are ethical dilemmas as when and how to intervene in such situations when they arise.
- For consumers to obtain quality goods and services from a market there should be free and fair competition in the market.
- Smaller businesses benefit when there is free and open entry into the industry.
- There should be well structured legal infrastructure to protect small businesses from hostile competition in the market.
References
Fahri, K. (2002). Barriers to entry in industrial markets. Journal of Business & Industrial Marketing. Vol. 17, No. 5, 2002
Chris, R. (2001). Contestable Markets. Economics for International Students. Available from: http://www.cr1.dircon.co.uk/TB/2/monopoly/contestablemarkets.htm.
Kolar, A. (2004). Essential law for marketers. Available from: http://my.safaribooksonline.com/book/-/9780749464509/3dot-legal-barriers-to-market- entry/c03_xhtml.
Pine, B.J. (1992). Mass customization: New frontier in business competition. USA: Harvard Business Review Press
Cohen, M. (2007). Ethical dilemmas. London: Routledge
