In: Accounting
Write a short essay. a. Explain what makes it an ethical question. b. Explore the ethical dimensions of the question. This should include alternate points of view about possible answers to the question. Using what you’ve learned from our textbook, the course, and elsewhere, draw conclusions about what aspects of the issue you believe are and are not ethical, presenting multiple perspectives on the issues and ultimately articulating and defending your point of view.
1. Is it ethical to intentionally sell goods or services at a loss in an effort to drive out competitors and gain market share?
Off late, modern businessess have started to effectively utilise the economies of scale in carrying out the business across geographies, territories and countries. Modern businesses with a pinch of innovation in their products not only, offer innovative products , but they offer them at discounted rates so as to gain a market share immediately after entering the market. Through this, it would directly result in the improvement in the employment opportunities that are available and also increases revenue to the beuracracy of the country. The consumers, on the other hand would be benefitted by subsidised prices and easier availability and accessibility to the goods.
With reference to the below question:-
1.) Is it ethical to intentionally sell goods or services at a loss in an efford to drive out competitors and gain market share?
The above question can be analysed into the following different angles :-
a.) The above question is definitely ethical according to me because of the following reasons :-
i.) With the constant improvement in technology and economies of scale, there are a large number of business houses who are in race to capture the market. For example :- During summer, there is a huge demand of cotton clothes as people tend to wear more of these clothes to beat the heat. Looking at the demand for these clothes, a new manufacturer may venture into the market. To capture market share, he would want to offer his products at lower prices(provided he has the capacity to withstand the loss) initially so that the customers are aware of his brand are are slowly and gradually pulled towards his brand.
ii.) The question can definitely be ethical also from the point of the existing players in the market. I.e- who have been surviving in the challenging market for years together. These people find it difficult to suddenly match the costs of the new competitor and face difficulties in surviving. As consumers, we would prefer to choose the option that is more affordable for us. As such, we would want to try the goods of the competitor who sells it at affordable prices rather than paying a premium for the same product.
iii.) Considering the above scenarios, it is definitely an ethical question as the situation is a modern day problem which many competitors in all the industries endure.
b.) As mentioned above, the situation can be looked at from the point of view of the different stakeholders involved in the process :-
i.) The existing parties might find it really difficult to match the price offering made by the new competitors because of traditional manufacturing techniques, higher number of employees, inability to adapt to latest technologies because of limited resources, etc. For these parties, the loss of business to new competitors would be a huge penalty if they are unable to withstand the extent of the loss of the market share.
ii.) Coming to the other side of the coin, the newly entered competitors would definitely want a good launch for them to survive in the industry. To achieve this, they would have to launch aggressive marketing campaigns and offer goods at subsidized prices for the first few months that they come into existence so that they can capture the existing market and would also able to get the confidence about the scope and demand for the company's products. For example :- In the Indian telecom industry, the players like Airtel and Vodafone were reigning the market until and unless the competitor Jio came in. Jio offered 6 months of free calls and internet for all its users thereby pulling the customers of Airtel and Vodafone under its blanket. Even though it was an offer for 6 months only, Jio was able to pull the traffic of Airtel and Vodafone by literally 30 to 35% atleast during those times. The customers were the huge beneficiaries as the call rates and the data rates were reduced by literraly 70% post the entry of Jio. As seen in this example - the new entry of one player posed a challenge to the existing parties in the business and businesses like Aircel, Tata Docomo, etc had to shut down completely because of Jio.
MY VIEW :- Based on my understanding of the topic and analysis of the conditions prevailing in the market, i would definitely advocate the fact that it is ethical for new comers in the business to offer attractive prices initially to gain a share in the market. Additionally for absolute essentials like telecom, transport, etc - it is beneficial if the government can interfere and modulate the industry so that there is an equal scope for all the competitors to survive in the industry. My decision has been arrived also with the following few reasons being ,
i.) It allows for increased competition among the fellow companies;
ii.) Increased competition would result in better benefits being passed on to the consumers;
iii.) There will be a healthy competition in the market if the government can regulate the industry thereby paving the way for all the competitors to survive in the market;
iv.) The quality of goods provided will definitely improve if there is oligopoly as all of them would want to provide better quality goods.