Doctrine of caveat emptor ppt

McGraw-Hill/Irwin

Chapter 15
Consumerism

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Harvey W. Wiley

In the late 1800s, Harvey W. Wiley, a professor at Purdue University, began working with Indiana state officials to detect adulteration in food products

A large, highly competitive food industry applied new food chemistries using preservatives, colorings, flavorings, texturizers, and other additives

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Harvey W. Wiley

With few laws to police dishonorable operators, dangerous, fraudulent, and cheapened products made their way to market.

At age 39, Wiley took charge of the Bureau of Chemistry in Washington, D.C.

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Harvey W. Wiley

Wiley began to agitate for a national pure food law

Wiley set up an experiment whose participants were nicknamed the “poison squad”

In 1906, Congress finally passed the Pure Food and Drug Act

The Bureau of Chemistry evolved into the Food and Drug Administration, a powerful agency that protects public health

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Consumerism

Consumerism:

A movement to promote the rights and powers of consumers in relation to sellers

A powerful ideology in which the pursuit of material goods beyond subsistence shapes social conduct

Consumer: A person who uses products and services in a commercial economy

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Consumerism as an Ideology

Consumerism describes a society in which people define their identities by acquiring and displaying material goods beyond what they need for subsistence

The full emergence of consumerism came as economic changes interacted with cultural and social developments

Declining influence of religion

The industrial revolution

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Consumerism Rises in America

In the 1800s, a commercial economy began to appear

Consumerism in America began with a confluence of events at the turn of the 20th century

Railroads

Great merger wave of 1896-1904

Mass production of consumer goods

Electricity and other new technologies

Movement of people

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Consumerism in Perspective

Marketing research reveals a widespread, profound effort to find love, status, and individuality in products

Materialism is an emphasis on material objects or money that displaces spiritual, aesthetic, or philosophical values

Thorstein Veblen, in his book The Theory of the Leisure Class, challenged the conventional economic wisdom that consumers bought goods for their functional utility

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Consumerism in Perspective

Complaints about consumerism include:

It leads to commodification of all parts of life

It encourages unwise, irrational, and unproductive uses of money

Heavy consumption is profligate with natural resources and incompatible with sustainability

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Consumerism in Perspective

Consuming beyond necessity violates “the idea the God’s world is already full and complete”

It distorts our values

It is a pathology of corporate capitalism

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The Global Rise of Consumerism

The ideology of consumerism has risen in Russia, Asia, Latin America, the Middle East, and even Africa

It may be less a Western than a universal phenomenon, coming with human nature, economic progress, and cultural change interact at a certain moment in a modernizing society

Once it takes hold, consumerism seems irrepressible, but resistance continues

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In Defense of Consumerism

Successful products either create value for customers or they fail in competitive markets

Intense competition between corporations works to bring consumers more choices, higher quality, and lower prices

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Consumerism as a Protective Movement

The idea of collective interest in protecting consumers dates back to the earliest transactions between merchants and customers

1870s when Populist farmers attacked railroads

Food and Drug Act of 1906

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Consumerism as a Protective Movement

The 1960s and 1970s prompted another wave of legislation to protect consumers and expand their rights

Consumer protection is today a major function of government

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Figure 15.2 - Spending on Consumer Health and Safety by Federal Regulatory Agencies: 1960–2010

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The Consumer’s Protective Shield

Besides federal laws and regulations, there are significant protections at the state and local level

Every state and local government has extensive consumer protection laws

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The Consumer’s Protective Shield

More than 50 federal agencies and bureaus are active in consumer affairs

These agencies and bureaus are effective despite changing ideologies in administrations, powerful critics, budget restraints, and too little staff to meet all their statutory mandates

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The Food and Drug Administration (FDA)

Evolved out of the authority established by Congress in the Food and Drug Act of 1906

Nineteen specific areas of responsibility

It has authority to:

Regulate the quality, safety, and labeling of human food, pet foods, animal feeds, and food additives

Approve human and veterinary drugs and medical devices

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The Food and Drug Administration (FDA)

Set safety and effectiveness standards for over-the-counter drugs

Regulate the safety and labeling of cosmetics

Regulate the marketing, labeling, and ingredients of tobacco products

Set safety standards for radiation-emitting products including microwave ovens, televisions, X-ray machines, lasers, and sunlamps

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The Consumer Product Safety Commission (CPSC)

Created by Congress in 1972

Has power to:

Set mandatory or encourage voluntary safety standards for more than 15,000 consumer products

Ban the sale of products that expose consumers to unreasonable risks

Require manufacturers to recall dangerous products

Investigate the extent and causes of deaths and injuries from consumer products

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The National Highway Traffic Safety Administration (NHTSA)

Created by Congress in 1966 to:

Mandate minimum safety standards for automobiles, trucks, and their components

Set fuel economy standards for cars and light-duty trucks

Require manufacturers to recall cars and trucks with safety defects

Administer grants for states and cities to promote highway safety

No other agency has such extensive controls over a single product

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Figure 15.3 - One Effect of Deregulation on Three Consumer Agencies

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Other Consumer Protection Agencies

The Federal Trade Commission

The Environmental Protection Agency

The Equal Employment Opportunity Commission

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Product Liability Law

Product liability: A doctrine in the law of torts that covers redress for injuries caused by defective products

Tort: A private wrong committed by one person against another person or her or his property

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Negligence

A tort involves either an intentional or a negligent action that causes injury

Obstacles to consumers in early product liability law:

Caveat emptor

Narrow interpretation of the doctrine of privity, which held that consumers could sue only the party that sold them the product

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Warranty

A warranty is a contract in which the seller guarantees the nature of the product

An express warranty is an explicit claim made by the manufacturer to the buyer

An implied warranty is an unwritten, commonsense warranty arising out of the buyer’s reasonable expectations

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Strict Liability

The doctrine of strict liability established that anyone who engages in a dangerous activity is liable for damages to others, even if the activity is conducted with utmost care

The key to strict liability is that the injured person need not prove negligence to prevail in court

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Strict Liability

Under strict liability an injured plaintiff must prove only that:

The manufacturer made a product in a defective condition that made it unreasonably dangerous to the user

The seller was in the business of selling such products

It was unchanged from its manufactured condition when purchased

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Perspectives on Product Liability

The U.S. legal system makes it easier for plaintiffs to win large damage awards from product makers than do the systems of other countries.

Nowhere else in the world has the legal system created such a favorable environment for product lawsuits as in the United States.

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Cost and Benefits of the Tort System

A recent estimate is that the tort system inflicts an annual economic cost of $835 billion on society, about 2.2 percent of GDP

Dangerous products have been either taken off the market, had their sales restricted, or been redesigned

Lawsuit threats and high liability insurance costs regularly cause companies to drop high-risk products

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Concluding Observations

Consumerism is a word with two meanings: it refers both to a kind of society and to a protective movement

Consumerism as a way of life is spreading around the world because the conditions that support it are becoming more common

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Concluding Observations

Consumers in the United States are now more protected from injury, fraud, and other abuses than in the past because of stronger government regulation and more consumer-friendly common law doctrines