Damage to the market
by the market itself
What do you mean by abuses?
By abuses of the market, I mean companies doing things as a part of their business that many would feel to be unethical, especially when it is the very market forces driving these actions to take place. Because of this rather vague definition, people will disagree on what constitutes an abuse of the market, but most folks would agree that it's possible.
Why do abuses of the market happen?
In a properly functioning market, there will be both winners and losers. The party that is competing the worst will often be losing money. When this happens, or even when profits are lower than expected, there is enormous pressure to find a way to make money quickly, even if this means behaving in a way one would otherwise not do.
Normally in a healthy market one would expect that any company that becomes abusive would simply lose its business. While this is sometimes the case, a number of ways have been discovered to get away with it.
A company can abuse anybody who it has power over, either directly through money, or by controling access to information. If a consumer doesn't know that a piece of meat is tainted, and happens not to get sick eating it, then the company's unfair information advantage has made them money. If a company pays a particular worker $5000 a year less than his services are worth on the open market, but knows that it will cost him $10000 to go through the process of finding another job like that one, then he will probably stay at his job (at least until the worker gets fed up).
What kinds of abuse exist?
- Abuse of Labor: The very people that are making money for a company are often its greatest expense. As such, there is some incentive to reduce this expense as much as possible. The main ways of doing this are either paying workers less than they are worth, either directly through wages, or covertly through reduced benefits. The other major abuse of labor is through poor working conditions. This can happen either by working them too hard (turning up factory line speeds to unsafe levels), or by simply not putting in place those capital improvements that affect safety but not profits.
- Abuse of Consumers: This
happens when a company knows more about their product than those who
consume it know. A company that makes a poor quality product
which appears to be normal may sell it at the price of the normal
product, keeping the difference for themselves. In any market
where the quality of a product is not entirely obvious upon inspection,
this can happen. Another major type of abuse of consumers is to
try to lock them in to using a specific product. If it can be
made very expensive to switch from a particular product to a
competitor, then the consumer will put up with a lot more poor
treatment than they otherwise would.
- Abuse of the Environment:
This happens when is more profitable to damage the environment in one's
business than it is to neglect to damage it (that is, most of the time
unless the government gets involved). Even though the society
holding that environment would be overall better off if nobody damaged
it, each individual has little economic incentive to protect it.
- Abuse of the Commons: This
is a more generalized form of the above. "The commons" is
anything which the public of a society owns in common. It could
be public land, public broadcast spectrum, public information systems,
etc. If it becomes profitable for one party to damage this
commons, then it is usually profitable for quite a lot of parties to do
likewise. This leads to a situation where everybody is racing to
do their damage first, before there's nothing left to destroy.
Ref: Tragedy of he Commons.
- Short-Term Thinking: This
happens all the time, but it's really an abuse of the very owners of a
business. Any business that is owned via stock often has very
fluid ownership, so many stockholders are more concerned about the
immediate profits of this quarter than about what will be happening in
the business in forty years. This can lead to doing things which
will improve profits in the short term, but which will severely damage
whoever ends up owning the stock in the long run, when what has
happened becomes common knowledge. In a sense, this is "abuse of
future stockholders".
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