Moral Dilemmas:Price Gouging and Internet Advertising

Price Gouging: Is it good for suppliers or consumers? Or both?

What is Price Gouging?

Under the law, evidence of price gouging was explained as follows: the law compares the price of the commodity or service to the average price charged over the 30 day period prior to the declared state of emergency. If there is a “gross disparity” between the prior price and the current charge then it is price gouging.

Some might believe that price gouging is when suppliers are benefiting from a short-term change in the demand curve or when prices rise higher than what a consumer wants to pay or considers fair or reasonable.

Basically, it is an increase in prices that are not justified after a supply or demand shock during an emergency.

Price Gouging: State of Emergency

Florida Statute 501.160 states – it is unlawful during a state of emergency to sell, lease, offer to sell, or offer for lease commodities, dwelling units, or self-storage facilities for an amount that grossly exceed the average price of the commodity the thirty days before the declaration of the state of emergency unless the seller can show increases in its prices or market trends justifying the price. Examples of necessary commodities are food, ice, gas, oil and lumber. This is a civil crime enforced by the Attorney General, the Department of Agriculture and Consumer Services and State Attorney.

Is Price Gouging Unethical?

Can Everyone Benefit?

Most suppliers benefit from price gouging but is there a positive aspect to price increases during a

hurricane for consumers?

Numerous economists have explained that price gouging is beneficiary to many people, not just the suppliers.

When individuals are concerned about the availability of resources, they stock up and buy as much as they can. This eventually leads to a shortage of supplies.

Without price gouging laws, suppliers have the incentive to bring goods and services to the affected area so not only is there more goods, but the increase stops consumers from buying more than they need.

Regardless of price gouging, competition would decrease prices to the most affordable but demanded price.

Super Bowl & Hotel Rates

Some cities asking companies to refrain from gouging Super Bowl week.

If prices can be held down down, owners believe more tourism will result which will ensure more profit

A Saturday night stay at a particular South beach hotel ran for $99 in the middle of January. Two weeks later,

during Super Bowl weekend, the same exact room rented for $800.

One might differentiate the difference between price gouging and a supply and demand principle by determining if one is in a state of emergency and if it is a necessity rather than a luxury.

eBay: Secondary iPad Market

Families were in line for hours to buy up all of the units and re-sell them for astronomical prices.

Several units ended up on eBay auctions selling from $2,000 - $4,000.

Other units were sold overseas for $1,700 - $2,000 where the iPad was not released yet.

Is Price Gouging for Apple iPads Unethical?

Price Gouging for Non-Necessities (Luxuries)

Price gauging for the iPad is based on the supply and demand economic concept.

Electronics are considered luxuries and third type necessities.

Apple followers are willing to pay thousands for the latest gadget.

Is Price Gouging for Apple iPads unethical? (cont.)

Price Gouging for Necessities

Price gauging for necessities in a state of emergency is considered unethical.

It’s unethical when suppliers exploit an imbalance in supply in their favor by selling necessities for new higher prices.

Individuals of all social classes are forced to buy necessities for double or triple the price.

Internet Advertising:Cookies, Pop-Ups & Spam

CookiesDo you like cookies? We have all types of cookies and almost everyone loves them. Check this one for example:

The cookie in the picture won’t harm you, but the other kind you can’t find in your oven are the ones that you should really be careful about.

They are called: INTERNET COOKIES

What are Internet cookies and how are these cookies used in your computer?

Cookies are small files downloaded on to your computer whenever you visit a website.

They are used by advertisers to track the users personal info and provide them with types of things the user likes whenever he or she visits a website.

Next, flashing banners or ads are added to the users website to attract their attention.

Do we have any privacy?

Some websites care about people’s privacy and they will not allow access to people’s personal data. However, as soon as someone attempts to keep records or use tracking devices on other people, privacy rights become an issue.

On the other hand, some websites that use cookies can lead advertisers directly to someone’s personal info.

In order for marketing firms to sell their products, they have to use cookies to receive information on the websites visited by a user. After getting this information, they send flashing banners and ads to the user’s most visited websites in order to attract attention to their products.

Why are the marketing firms using cookies?

How is this helping the marketing firms

or advertisers to gain profits?

By Knowing someones personal

data, it is easy for an advertiser to

send his ads to the website that the

person visited most. Once they catch

that customers attention, and the

customer click their banners, they

start interacting with the customer by

introducing them to their products

and making offers to buy their

products.

Advertising a product is good, but

tracking someones personal data is

morally wrong. Advertisers are

making profits out it by sending their

flashing banners to the customers

and some of these banners might be

false and contain viruses that help

hackers get personal info.

Morally right or wrong?

Pop-up Ads = Annoying?

All about Pop UpsFirst introduced in the mid 90’s.

Marketers from all over the world started using this method.

They soon became overwhelming and annoying to the consumers.

Due to the annoyance, pop-blockers were introduced by internet giants (Yahoo, Google, and Microsoft).

What happened to pop-up ads? Was this a proper way to advertise?

Pop up ads are still around. However, they are not as annoying as before.

Some organizations have stopped using them and a lot of software is currently out that stops these ads.

Marketers and World Wide Web guru’s have found other ways to advertise through the internet.

Pop-up ads began to have a more negative impact than it did a positive one.

Many organizations realized this way of advertising was giving their brand/company a negative image.

What is Spam?What types of Spam is there?

Spam is the use of electronic messaging systems (including most broadcast media, digital delivery systems) to send unsolicited bulk messages.

While the most widely recognized form of spam is e-mail spam, the term is applied to similar abuses in other media:

Instant messaging spamUsenet newsgroup spamWeb search engine spam,Spam in blogs,Wiki spamOnline classified ads spamMobile phone messaging spamInternet forum spamJunk fax transmissionsSocial networking spamTelevision advertisingFile sharing network spam.

Spam Marketing. Why?Spamming remains economically viable because advertisers have no operating costs beyond the management of their mailing lists, and it is difficult to hold senders accountable for their mass mailings.

Spammers are numerous, and the volume of unsolicited mail has become very high. In the year 2011, the estimated figure for spam messages is around seven trillion.

Lets say I want to send an advertisement to 1,000,000 “targeted” people:

-To send by regular bulk mail, it could cost around $200,000 - $300,000

-To send by email, it might only cost $1,000 -i.e: the cost to buy a list of email addresses harvested from web sites, mailing lists, chatrooms, and news groups are a lot cheaper.

Then there are Dictionary Attacks:-Try a lot of plausible address combinations-Keeping the ones that don’t bounce back-Puts added strain (bandwidth) on the network

Categorical Imperative

Categorical Moral Imperative Ethical View

-Act guided by moral principles that can at the same time be used as base for a universal code of law

-Act so that you always treat both yourself and other people as ends in themselves; never purely as means to an end.

Scenario: Suppose I have a great new product that I wish to advertise. I send an unsolicited email to a

large group of people knowing that only a tiny fraction is interested. It is not ethical as if everyone sent spam, it would render email useless. Everyone pays for email access and should not have their services rendered useless.

Act Utilitarianism

RuleU'litarianEvalua'on:

‐Weshouldadoptmoralruleswhich,iffollowedbyeveryone,willleadtothegreatestincreaseinoverallhappiness.

Scenario:Productsbeingadver3sed,whereonlyasmallfrac3onoftargetsareknowntobeinterested.

Whatifonly1%ofallsmallbusinessesintheUSemailedyou1Spamadver'sementperyear?

Thereare24,000,000smallbusinessesinAmerica

1%=>240,000emailsperyear

240,000/365=657emailsperdayforeachperson

SoisusingCookies,Pop‐UpsorSpamethicalunderRuleU'litarianism?‐No,becausetheusefulnessofthesewouldbeveryminimal!

ActU'litarianEvalua'on:

‐Anac'onisright(orwrong)totheextentthatitincreases(ordecreases)thetotalhappinessoftheaffectedpar'es.

Scenario:Aproductthatcosts$10tomake,issoldfor$25,purchasersvalueat$30.‐(i.e:theirderivedhappiness)

100millionbulkmessagessentcos'ngthosewhoreceiveitandarenotinterested.

Asaresulteachofthosehas$0.01ofunhappiness('mewasted).

10,000customerspurchaseproductandgetfullhappiness.

‐Profitforbusiness=$150,000‐Customerbenefit=$300,000‐$250,000‐Unhappiness=99,990,000*$0.01=$999,900

Rule Utilitarianism

Basically.....

Price gouging occurs when the wake of an emergency causes sellers of a certain necessary good to sharply raise prices beyond a normal specified selling cost.

In the United States, there is no anti-gouging legislation (besides during a state of emergency). Although one bill has passed the House of Senate focusing on price gouging gasoline.

Some people believe that price gouging is unethical while some economists believe that it can greatly benefit someone in desperate need.

To an extent, price gouging can serve moral goals by promoting effective allocation of insufficient resources and reducing shortages during times of emergency, overall creating economic incentives that will lead to increases of supplies to desperate populations.

When thinking about price gouging, make sure you decipher the difference between a luxury and a necessity. -We all need water during a hurricane, but are getting super bowl tickets a life or death situation?

And.....When it comes to Internet advertising, it is unethical to make false claims and bait-and-switch offers.

Cookies, Pop-Ups and Spam all occur without the permission of the receiver and it is not considered an appropriate or moral way to advertise.

The Internet Advertising Bureau is trying to develop guidelines for a ethical framework of advertising on the Internet.

Using Cookies, Pop-Ups and Spam are unethical ways to advertise under the rule utilitarianism because the usefulness of this Internet marketing is very minimal.

When advertising, it’s important to keep the categorical imperative in mind and keep moral principles in mind at all times.

QUIZ TIME !3. Are Cookies, Pop-ups or Spam ethical under Rule Utilitarianism? Why?

A) Yes, they can be used by anyone, therefore, it is ethically allowedB) No, they would diminish the usefulness that the media used to solicit itC) Yes, it allows anyone to make profits upon useD) No, they would allow equal happiness by all recipients

1. To determine price gouging, the law compares the price of the commodity or service to the average price charged over how many days prior to a state of emergency?

A) 7B) 15C) 30D) 45

2. Many economists believe that price gouging can benefit:

A) SuppliersB) ConsumersC) People in affected areasD) All of the above

4. Which forms or means of Internet advertising do many receivers find inappropriate or even deceitful?

A) All forms of Internet marketingB) Pop-ups, Spam, and CookiesC) Email lists you’ve signed up forD) None