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  Unit 1: Ethics and Business (Chapter 1)   Key Terms and Concepts 1.   Morality  : the standards that an individual or a group has about what is right and wrong (1.1) 2.   Ethics : examining moral standards and asking how these standards apply and whether these standards are reasonable or unreasonable (1.1). 3.   Economic institutions : institutions designed to achieve the production or distribution of goods and services in a society. (1.1). 4.   Business enterprises : the primary economic institutions through which people in modern societies carry on the tasks of producing and distributing goods and services. The most significant kind of modern business enterprises are corporations (1.1). 5.   Corporations : fictitious `persons with legal rights to sue and be sued and to own and sell property, and enter into contracts. Typically the modern corporation consists of (1) stockholders who contribute capital and who own the corporation, (2) directors and officers who administer the corporations assets and who run the corporation . . . (3) employees who who do the basic work related directly to the production [or distribution] of goods and services (1.1) 6.   Business ethics : the study of moral standards and how these apply to business enterprises and to the people who work within these organizations. (1.1) 7.   Ethical relativism : the view that there are no objective universal moral standards that apply or should be applied to . . . all societies but rather, that something is right in a particular society so long as it coincides with that societies own moral standards. (1.1). 8.   Multinationals : corporations that maintain operations in more than one host country. 9.   Moral reasoning : reasoning by which human behaviors, institutions, or policies are judged to be in accordance with or in violation of moral standards and essentially involving two elements: (1) a normative, or evaluative, element, some assumed moral principle or standard; (2) a factual, or descriptive, element that judges that a particular person, policy, institution, or behavior has the kinds of features these moral standards require, prohibit, value, or condemn. (1.2). 10.   Prisoners dilemma : a game theoretic paradox supporting the idea that ethical behavior is better for business. (1.4) 11.   Moral responsibility  : obtains when an agents is rightfully subject to moral praise or blame for their action or omission: one is morally responsible for only those acts (or omissions) which they knowingly and freely performed. (1.4) 12.   Excusing conditions : conditions which totally remove moral responsibility, specifically, ignorance (especially of facts) and inablity to have acted (or omitted) otherwise). (1.4) 13.   Mitigating conditions : factors that diminish moral responsibility but do not entirely eliminate it depending on how serious the wrong is. Mitigating factors include (1) uncertainty (especially about outcomes or circumstances), (2) degree of difficulty in performing (or refraining) from the act in question, (3) circumstances that diminish an individuals involvement in the act (or omission) without completely removing it. (1.4) Section numbers given are not the only places where the terms are found in the text. Many of theses terms will appear on the module exams. You should write a definition of each term as you encounter it in your reading for use as a convenient review. Summary Ethical behavior is arguably the best long term business strategy: Velasquez argues it is. Doing ethical business, he argues, is warranted by three arguments:   1.   Business is a part of life, all of which is subject to ethics (the Simple Argument) 2.   Ethical standards are necessary, in general, for the very existence of commerce and organization (Argument from Business' Need for Ethics); 3.   Ethical behavior is consistent with the pursuit of profit (Argument from the Consistency of Ethical Considerations with Business Pursuits). Reflection on the prisoners dilemma shows why ethical standards are necessary and how ethical behavior is consistent with the pursuit of profit. The fact that customers and employees care about ethics further explains the inescapability, necessity, and profitability of ethical behavior. Ethics being the critical analysis and conscientious pursuit of "morality," business ethics is the ethical analysis of, and the application of "moral" principles to, business practices. Legality, though related, is something else: not everything legal is moral, and not everything moral is legal. The distinction between "morality" and ethics is underlined by the differences between the various "moral" principles to which different people and cultures subscribe. Ethical relativism the view that whatever the "morality" a group or culture prescribes is what's truly ethical for that group is objectionable insofar as it puts group "morality" above criticism. Perhaps the most basic form of moral reasoning, is exemplified by the "practical syllogism" of which the following is an example:    Tobacco is a harmful addictive substance that R. J. Reynolds, by its Joe Camel advertising campaign, deliberately lured children into using. (factual premise)    Luring children into using harmful addictive substances is wrong. (evaluative "moral" principle)    Therefore, R. J. Reynolds did wrong. (evaluative conclusion) Such reasoning is subject to three criteria of adequacy: 1.   logical validity: Does the conclusion actually follow from the premises if true? 2.   factual accuracy: Are the claims made by the factual premise true? 3.   normative adequacy: Is the moral principle stated by evaluative premise true? Besides the evaluation of acts as good or bad, or right or wrong (as in the practical syllogism), moral responsibility is another important topic of moral reasoning. To be morally responsible for something is to be justifiably subject to blame for it (if it's bad) or credit (if it's good). Individuals are morally responsible for what they knowingly and freely do. Complete lack of knowledge of the nature or consequences of the deed, or complete inability to have avoided doing it, completely excuse an individual from moral responsibility. Partial lack of knowledge or partial inability to avoid the act, mitigate (or lessen) an individuals' responsibility. Whether corporations are morally responsible agents themselves or whether only the human individuals that comprise these corporations bear moral responsibilities are disputed questions closely related to issues concerning the moral responsibilities of subordinates carrying out orders. It is, nowadays, generally acknowledged that "following orders" is not completely excusatory, though it may be mitigating: the Nuremberg verdicts after WW2 against Nazi war criminals set an important precedent in this connection. Unit 2: Ethical Principles in Business (Chapter 2) Key Terms and Concepts 1.   Utility  : the balance of intrinsic benefits, minus intrinsic costs, for all affected by an action or policy. (§2.1)  2.   Utilitarianism : Moral theory that holds that the moral worth  –  the rightness or wrongness  –  of an act is entirely determined by its overall consequences and their utility. (§2.1) 3.   Intrinsic good  : inherent or basic value. Intrinsic goods are valued for their own sakes, as happiness is. Intrinsic value stands in contrast to instrumental or extrinsic value. To have instrumental value is to be valued for the sake of something else -- as means to some further ends -- as money and medical treatment are. (§2.1) 4.    Autonomy  : freedom or self-determination. (§2.2) 5.   Right  : an entitlement to act in certain ways, or be treated in certain ways, without being subject to punishment or blame. Every right (of one) imposes converse duties. So called “negative rights” impose duties of noninterference (or omission); so called “positive rights” impose duties of assistance or (commission). (§2.2) 6.   Duty  : a requirement to act in certain ways (duties of commission) or refrain from acting in certain ways (duties of omission) where failure to so act or refrain warrants punishment or blame. (§2.2) 7.   Fairness : treatment in accord with the fundamental principle of justice that maintains individuals similar in relevant respects should be treated similarly.” (§2.3)  8.    Justice : fairness in awarding repayment (compensatory  justice), imposing punishment (retributive justice), or assigning benefits and burdens within society (distributive justice). (§2.3) 9.   Categorical Imperative : An absolute or unqualified commandment  –  with no “ifs” –  such as Kant took the commands of morality to be. The one categorical imperative from which all the others derive, Kant believed, was to only act on such policies (or “maxims) as you would be willingly to see universally adopted, or alternately (and Kant thought equivalently) to treat humanity in yourself and in others always as an end and never as a means only. (§2.3) 10.   Universalizability  : Requirement  –   imposed by Kant’s Categorical Imperative -- that the policy you act on should be one that you would be willing for everyone to act on. (§2.3) 11.   Reversibility  : Requirement  –   imposed by Kant’s Categorical Imperative  –  that the policy you act on should be on that you should be willing to have others adopt in their treatment of you. (§2.3) 12.   Care : (in the technical sense employed in this chapter): a special duty of partiality limited to specific individuals and arising from contractual or personal relations between those specific individuals. (§2.4) 13.   Virtue : A positive (desired and admired) character trait such as courage or honesty. Negative (undesirable and contemptable traits), such as cowardice and dishonesty, are vices. (§2.6) Summary Utilitarians view morality as a kind of higher economics, viewing moral reasoning on the model of economic profit-loss calculations, with the following differences:    the "profits" and "losses" at issue are not monetary but intrinsic costs and benefits,    the costs and benefits not just for the agent but for everyone are considered. Utilitarians differ on how they describe the intrinsic benefits and costs to be counted. Jeremy Bentham, the srcinator of the approach, spoke of "pleasure" and "pain," but his most famous formulation (the greatest happiness principle: do what results in "the greatest happiness for the greatest number") and his most famous follower (John Stuart Mill) stress "happiness” rather than “pleasure.”  Contemporary Utilitarians tend to speak, rather, of "interest satisfactions" or "preference satisfactions" as benefits and "dissatisfactions" as costs. Utilitarianism while widely respected, is also widely held to be lacking insofar as it considers only consequences, or effects  –  on Utilitarian principles the ends do  justify the means. Utilitarian principles, it seems give short shrift to considerations that might override expediency: rights and justice. Conceptions of morality emphasizing either rights and duties or fairness  –  justice based conceptions, for short -- view morality as a kind of higher law. Rights can be viewed as entitlements to act in certain ways, or be treated in certain ways, without being subject to punishment or blame. As ever, moral rights need to be distinguished from legal rights: moral rights are universal human rights; legal rights vary from jurisdiction to jurisdiction. Every right imposes a corresponding duty on others. On the basis of apparent differences between duties of omission and commission many recognize a further distinction between negative rights (imposing only negative duties of restraint) and positive rights (imposing positive duties of action). This distinction figures largely in discussions of distributive justice (below). Contractual rights and duties are "special" rights and duties arising from agreements and limited to the parties to these agreements. It is difficult to provide a justification for claims of moral rights. Immanuel Kant is widely recognized as having made the most noteworthy attempt. Kant's categorical imperative asserts a universal human right to autonomy as a basis for all other rights and duties. While Kant's attempt is open to criticism on grounds of imprecision and impracticality, perhaps the most damning objection is the "different strokes" or "heteronomy" (Kant) objection that, for evil (e.g., racist) minds, Kant's approach will license all sorts of evil: the Kantian approach only seems to require that the evildoer to practice the evil (e.g., racism) consistently for it to be morally justified. On the one hand, justice has to do with fairness and is concerned with the comparison of the treatment given to different individuals. On the other hand, justice and rights are connected insofar as violations of rights are considered unjust. In either case, considerations of justice are normally taken to trump cost-benefit considerations, though sufficiently large costs and benefits are sometimes taken to trump justice back. With regard to justice as fairness, three categories of justice are distinguished: 1.   distributive justice : fair distribution of society's benefits and burdens; 2.   retributive justice : fair imposition of penalties on those who do wrong; 3.   compensatory justice : fair repayment for losses suffered due to others’ misconduct or mistakes.  The fundamental principle of justice that equals should be treated equally and unequals unequally can be accepted by all because it is empty of content until differences warranting different treatment are specified. Competing conceptions of distributive justice, notably, differ on just this point.    Egalitarian conceptions allow no distinctions and hold, consequently, that every person should be given an equal share of society's benefits and burdens: egalitarianism seems better suited to the apportionment of political benefits and burdens than economic ones.    Contribution based conceptions of distributive justice hold that benefits should be proportional to what the individual contributes to society or the group. Different contribution based conceptions differ on how to measure contribution. Effort and productivity are the most commonly recognized factors. Capitalist contribution based justice counts contribution of capital as productive. To the pure socialist needs based principle (see below) socialist practice invariably adds "and his work,” f  actoring in effort.    Needs based or ”socialist” conceptions of distributive  justice propose distributing benefits according to individuals' needs for them and burdens according to individuals' abilities to bear them. "From each according to his abilities, to each according to his needs!" (Karl Marx, Critique of the Gotha Program, 1874)  Utilitarian and justice-based approaches agree in their demand for impartiality. Utilitarians require impartial assessment of costs-benefits and justice based approaches require impartial application of rules. Both approaches, consequently, may be criticized on the grounds that they fail to adequately acknowledge the importance of "special duties" of partiality or care necessary for achieving and maintaining intimacy and relationships. A related complaint is that utility and justice based approaches, by focusing on externals  –  on consequences (in the case of utilitarianism) and the letter of the law (for justice based approaches)  –  fail to adequately take account of the spirit of the act and the moral character of the agent. Virtue based approaches seek to remedy these deficits. Such approaches are open to criticism for being insufficient guides to action. In institutional settings their failure to suggest any procedure for moral decision making, together with their focus on subjective estimations of character and closeness, even seem to invite wrongful sorts of favoritism such as nepotism and ethnic, religious, and other forms of discrimination. Nevertheless, care and character based considerations point up the incompleteness of both utilitarian and justice based approaches, despite the more rigorous seeming decision procedures they seem to suggest. Consequently, we need to weigh the relative importance of different types of considerations (of utility, fairness, rights, care, and character) in specific situations on the basis of rough criteria and subjective -- or collectively agreeable  –  judgments of comparative value. Unit 3: The Market System: Government, Markets, and International Trade   Key Terms and Concepts  1.   Globalization : The process by which the economic and social systems of nations are connected together so that goods, services, capital, and knowledge move freely between nations. (126) 2.   Command economy  : system of economic planning and regulation in which governing authorities make production and distribution decisions by issuing enforceable commands. (128) 3.   Market economy  : system of private ownership and “free market” exchange in which production and distribution regulate themselves by the law of supply and demand  . (128) 4.   Mixed economy  : any economic system featuring both market and command elements. (153) 5.   Supply and demand  : law of economics according to which low supplies drive prices up (as buyers compete), and hence production up (as more profitable); and low demand drives prices down (as sellers compete), and hence production down (as less profitable). (136) 6.   Proletarian : wage laborer. In Communist theory all wage laborers  –  blue collar or white, salaried or hourly  –  are proletarians. Likewise, only   wage laborers are proletarians. The unemployed are lumpen proletarians. Similarly, small business owners and independent trades people are  petit bourgeoisie, not full-fledged Capitalists. (150) 7.   Bourgeoisie : Capitalist owners of the means of production who are the ruling class in capitalist societies (150). 8.   Capitalism : economic system in which industrialized (and other) means of production are privately owned and operated for private gain in a market economy. (§3.4) 9.   Communism : economic system in which industrialized (and other) means of production are publicly owned and operated for public benefit under a command economy. (§3.4) 10.   Business cycle : Cycle of overproduction leading to periodic downturns (repressions and depressions) characteristic of the early development of capitalism, which Karl Marx held to be among capitalism’s chief flaws. (§3.4) 11.    Alienation : separation of the worker from the product of his or her labor (which the capitalist owner of the means of production “expropriates”), and from and control over the labor process itself (which the owner dictates). (146) 12.   Keynesian : relating to the economic theories of John Maynard Keynes according to which “public sector” expenditures and investments help to moderate the ups and downs of the business cycle. (139-41) 13.   Social Darwinism : the view that capitalism is, morally, the best economic system because, like Darwinian evolution, capitalist competition favors the “survival of the fittest” and hence leads to the improvement of the human species. (141-2) 14.   Intellectual property: Property that is abstract and nonphysical. (154) Page or section numbers given are not the only places where the terms are found in the text. Many of theses terms will appear on the module exams. You should write a definition of each term as you encounter it in your reading for use as a convenient review. Summary In this chapter the nature of the business system is explored through consideration of controversies surrounding it. Here, regulative and antiregulative (or laissez faire ) policies are associated with communitarian and individualistic ideologies, respectively. Command economies (towards which regulation tends) and free market economies (towards which absence of regulation tends) represent different ways of solving the fundamental economic problem of coordinating the production and distribution of goods. Under command systems, control is centralized and "top-down": a governing authority decides system wide policy and communicates its decisions to those responsible for carrying it out as enforceable commands. The U. S. and British economies during WW2 as well as the Soviet economy (especially between 1928 and 1953) provide examples of command economies. In free market systems control is decentralized and "bottom up": individuals and privately owned and controlled corporations make their own production decisions and seek the most advantageous prices in exchanging their goods with other firms and consumers. Price level fluctuations in such exchanges, due to supply and demand, serve to coordinate system wide production by encouraging investment in profitable enterprises and discouraging investment in unprofitable ones. The two main components of a free market system are 1.   a system of private property embodied in property laws, and 2.   a market system, such as our system of monetary exchange, enabling individuals and corporations to freely contract to exchange goods or property. Few advocate an absolutely  pure  market system  –  putting no  restraints on rights of ownership and exchange whatever: this would allow trade in sex (prostitution), drugs, and even people (slavery). All real market systems impose restrictions on ownership and exchange out of concern for the public welfare. Still debate continues over to what extent governments should intervene in the workings of the market system. John Locke, and his followers argue that a free market system best serves to guarantee fundamental human "natural rights" to life, liberty, and property. Governments are instituted, by the consent of the governed, in order to protect these rights and the consensual nature of this compact or covenant imposes moral limits on government. Governmental interference with the life, liberty, and property of individuals  –  except in order to prevent their infringement on the same rights of others    –  is unjust and unwarranted. Government regulation of the marketplace infringes on individuals' natural rights without such just warrant and, hence, is a wrongful violation of individual rights that should not be tolerated. Critics of Locke complain, that Locke's assertion of natural rights is baseless and his assertion of the priority of negative (life, liberty, and property rights) is too. If humans do have  natural (life, liberty, and property) rights, it doesn't follow that such rights override positive rights to food, housing, and medical care (for instance). Furthermore, critics maintain, Lockean  (life, liberty, and property) rights conflict with and may sometimes be overridden by the demands of distributive justice, and free market economies by their very natures create distributive injustices. Finally critics dispute the individualist assumptions underlying Locke's approach, contending that individuals are endowed with life, liberty, and property not by nature alone, but as members of society: since these rights are granted by society, society may rightfully restrict these rights when doing so best promotes the general welfare. Adam Smith and his followers argue that free market systems best promote the general welfare by maximizing economic utility. Such a system ensures that the economy produces what consumers want with maximum efficiency: the law of supply and demand   causes the marketplace to produce the goods consumers desire, and competition between producers puts the inefficient out of business. Consequently, free markets best serve economic efficiency. In such markets agents motivated only by self-interest (a desire for their own profit) are led to serve society's needs "as if by an invisible hand." Government intervention in the workings of the market interferes with the self regulating effect of competition, thus reducing its beneficial consequences, since human planners can never regulate markets as efficiently as the "invisible hand." Critics complain, first, that his argument rests on several false assumptions. 1.   Smith unrealistically assumes there always to be many producers freely competing to provide various products to consumers. But monopolies and oligopolies arise which, being able to set prices artificially high and keep production artificially low, are, largely immune to control by market forces. 2.   Smith falsely assumes that producers pay for all the resources they use in production and consequently will conserve resources to keep down costs. But this overlooks resources (such as air and water) for which producers do not have to pay and, consequently, have no reason to conserve and will carelessly exploit. 3.   Smith assumes that profit is the only human motive driving economic behavior, such that each "intends only his own gain" by following the rule of "economic rationality." But people (even corporations) are not purely rational or exclusively profit seeking: they are frequently actuated by noneconomic goals and often behave irrationally, besides. Worse, socialist critics charge, capitalism actually makes  people materialistic and selfish . . .a bad   thing. Critics also point to many successful attempts at economic planning as showing that planning is feasible. But, Velasquez observes, it may only be feasible so long as it remains one component within a largely market based economy. John Maynard Keynes and his followers maintain that government, by investment in the "public sector" and other interventions can help moderate the ups and downs of the business cycle. By  judicious governmental intervention, the periodic recessions  and depressions that unregulated free markets suffer can be controlled if not avoided entirely. Given the immense economic and human costs of such economic downturns, Keynes maintains, timely governmental interventions to enlarge effective demand and decrease unemployment improve on Smith's laissez  faire  approach when it comes to maximizing social utility. Post Keynesians address the seeming paradox of stagflation –    inflation in conjunction with unemployment  –  and explain this as the effect of nonmarket forces (especially, unions and monopolies & oligopolies). Post Keynesians propose an even larger role for government: besides boosting aggregate consumption and demand (as Keynes advocated) governments should also curb the power of oligopolies and monopolies. Social Darwinism maintains that economic competition works like natural biological selection to insure the "survival of the fittest" and thus the improvement of humanity since, under Capitalism, only the fittest individuals and enterprises survive and prosper. In its individualistic form, Social Darwinism is biologically naive in its understanding of "fitness", logically dubious in its transition from the fact of survival to the goodness of the survivors, and mean-spirited with its let-the-weak-die attitude. Social Darwinist sorts of claims when reinterpreted as applying to the evolution of   firms  or  corporations , however, may be more defensible. Karl Marx and his Communist followers develop the most thorough and severe  criticism of the capitalist system of private ownership and free markets. According to Marx the exploitative excesses of early capitalism were symptomatic of the underlying dynamic of a system that promotes distributive injustice, undermines communal relations, and causes alienation. Alienation severs the connection between the worker and both the  process of   and the  products of   the production: the product of the wage laborer or  proletarian 's labor belongs to another, and the process of the production is dictated and controlled by that other, the capitalist. The capitalists  or bourgeoisie  own the factories and other means of production. The real purpose of government being to serve the interest of the ruling class, in capitalist societies, the government is, in effect, "a committee for managing the common affairs of the whole bourgeoisie" (Marx & Engels). Other aspects of capitalist culture constitute an ideology that seeks to justify the continued rule of that class. Capitalism, however, contains the seeds of its own destruction in the form of 1.   concentration of wealth in the hands of the few leading to monopoly conditions and to swelling the numbers and increasing the misery of the working class; 2.   the business cycle & periodic economic crises. These contradictions must eventually give rise to a violent revolution wherein workers seize control of the means of production for themselves and institute the "dictatorship of the proletariat." Under this regime the means of production will be collectively (rather than privately) owned and the economy will be centrally planned and managed (rather than left to the working of the market). With the advent of a classless society and the "new socialist man," it's maintained, the dictatorship of the proletariat will gradually "wither away." Critics complain, first, that Marx's predictions have proved false: immiseration of workers has not occurred; the business cycle has been controlled; and capitalism has not caused the breakdown of community (if this has occurred, it can plausibly be blamed on other factors, and communism causes worse breakdowns). Critics also defend the morality of capitalism on the grounds that capitalist distribution is  just   on contribution based accounts of distributive justice, and that the utilitarian benefits of capitalist production outweigh any injustices there may be. In reality, what exist today are all mixed economies  –  mixing free market economic and command economic elements. There remain substantial differences between national economies as to the degree to which command or  free market   elements predominate. There also remains substantial debate regarding what is the best mix of governmental regulation and property rights and free markets. The ideal mixture would best combine the efficiency of free-markets with social-welfare serving and justice preserving effects of governmental regulation. Intellectual property rights issues seem to require a similarly mixed approach balancing individual-ownership and community-access considerations. Unit 4: Ethics in the Marketplace (Chapter 4)   Key Terms and Concepts 1.   Perfectly competitive market  : a free market in which no buyer or seller has the power to significantly affect the prices at which the goods are being exchanged. (167) 2.   Distribution (LH): first defining condition of perfect competition: a market is distributed to the extent that “there are numerous buyers and sellers, none of whom has a subst antial share of the market” (167).  To the extent that markets lack distribution (as monopoly and  oligopoly markets do) they are said to be concentrated  . (181) 3.   Openness (LH): second defining condition of perfect competition: a market is open to the extent that "buyers and sellers can freely and immediately enter or leave the market. To the extent that markets lack openness they are said to be closed  . 4.   Monopoly markets :   markets in which a single firm is the only seller in the market and which new sellers are barred from entering. (167) 5.   Oligopoly markets : markets that are dominated by a few large firms. (167) 6.   Horizontal merger  : the unification of two or more companies that were formerly competing in the same line of business. (181) 7.   Diminishing marginal utility  : principle governing demand according to which the more units of some item you already have, the less demand you will have for additional units. In effect, “the price consumers are willing to pay for goods diminishes as the quantity they buy increases.” (169) 8.   Increasing marginal costs : principle governing supply according to which, beyond a certain point, each additional unit produced costs more to produce than earlier units. (170) 9.   Equilibrium point  : the point at which the amount buyers want to buy equals the amount sellers want to sell and the price buyers are willing to pay equals the price sellers are willing to take. (171) 10.   Discretionary preference satisfaction (LH): he ability of buyers to decide between purchasing different types of goods thus "putting together the most satisfying bundle of commodities given the commodities they can purchase and the money they can spend" (180). 11.   The do-nothing view  : view that nothing need be done about the growth of oligopolies and increasing concentration of markets. (190) 12.    Antitrust view  : view that large firms should be broken up into smaller firms, each controlling only a small share of the market. (190-2) 13.   Regulation view  : view that oligopolies should not be broken up but need to be regulated to prevent anticompetitive abuses. (192-3) Page or section numbers given are not the only places where the terms are found in the text. Many of theses terms will appear on the module exams. You should write a definition of each term as you encounter it in your reading for use as a convenient review. Summary If free markets are moral it's because they allocate resources and distribute commodities in ways that are just, that maximize utility, and that respect the liberty of buyers and sellers. Since markets having these benefits depend crucially on their competitiveness, anticompetitive conditions and practices are morally dubious. Monopoly practices and markets and oligopoly practices and markets are two principle types of anticompetitive practices and conditions that free market economies spawn. Under monopoly conditions a single seller controls a market segment. Under oligopoly conditions just a few sellers control a market segment. Though real markets are all imperfect,  perfect competition  serves as a useful idealization both for economic purposes of explaining and predicting market behavior, and for ethical purposes, for understanding and assessing the moral case for keeping markets competitive. A  perfectly competitive market   is defined in terms of seven conditions: 1.   distribution: numerous buyers and sellers, none of who has a substantial market share. 2.   openness: buyers and sellers are free to enter or leave the market 3.   full and perfect knowledge: each buyer & seller has full and perfect knowledge of each others' doings 4.   equivalent goods: goods being sold are similar enough that buyers don't care whose they buy. 5.   nonsubsidization: costs of producing or using goods are borne entirely by the buyers & sellers. 6.   rational economic agency: all buyers and sellers act as egoistic utility max imizers who seek to “buy low and sell high” always.  7.   nonregulation: no external parties such as governments regulate the price, quantity, or quality of goods. Freely competitive markets, in addition, presuppose    an underlying system of production : so there's goods to exchange    an enforceable private property system:  so buyers and sellers have ownership rights to transfer    a system of contracts: to administer such transfers. Perfect competition gets its ethical import from that fact that the self-regulative abilities of free markets  –  in response to supply and demand     –  provide the principle arguments for their morality. Where supply exceeds demand, prices, profits, and production decrease; where demand exceeds supply, prices, profits, and production increase: thus under conditions of perfect competition production naturally tend toward the equilibrium point (where supply equals demand). The principle moral benefits alleged for free markets are three: 1.   serving demands of capitalist (contribution-based) justice 2.   maximizing economic utility 3.   safeguarding negative rights of economic liberty Even so, this would-be moral justification is limited   by additional considerations of  positive rights, of care and of character  ; and it is challenged   by competing egalitarian , needs-based   and socialist-contribution-based   conceptions of distributive justice. Finally, to the extent that actual "free-market" policies fail to be perfectly competitive, their claim to actually having  the alleged benefits (and with it their claim to morality) is diminished. Monopoly and oligopoly conditions are morally problematic due to their violation, especially, of the two "basic conditions" for the existence of perfect competition, distribution , and openness . Monopoly markets, being  –  "markets in which a single firm is the only seller . . . and which new sellers are barred from entering" (p. 221) are by definition not distributed   (rather, concentrated  ) and not open  (rather, closed  ). Under monopoly conditions, the nonexistence of competition and the inability of competitors to enter (to increase supply and bid prices down) results in artificially high prices; prices above the equilibrium point or natural price. This equilibrium point, being the point at which investors make a fair return (equal to the going-rate across comparable markets), is the point at which capitalist justice is served. Consequently, under monopoly conditions such justice is ill served: the seller charges more and the buyer is forced to pay more than the goods are worth (i.e., their natural price). Furthermore, monopolies foster distributive inefficiency, since demand is less well served; and monopoly conditions remove competitive pressures ordinarily making for increased productive efficiency. Discretionary preferences of consumers also suffer under monopoly conditions: consumers are forced to cut back more on other items than they would have had to (under "normal conditions") to afford the monopolized goods. Finally, monopoly conditions do no so well safeguard economic liberty as open competition does: sellers are not free to enter the market; and buyers buy overpriced products under duress in the absence of alternative vendors. True monopolies are rare but oligopoly conditions  –  where a few firms control most of the market  –  are common and have similar anticompetitive dynamics and effects. Horizontal mergers  –  between former competitors  –  are the chief cause of oligopolistic conditions. Oligopoly markets, not unlike monopolies, are not distributed, but largely concentrated: the fewer firms control the
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