July 24, 2024 

AmosWEB means Economics with a Touch of Whimsy!

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A Somewhat Defective Look At PRODUCT SAFETY

WAIT! STOP! My shoe's untied! And my blasted shoestring is tangled! Fortunately I have my handy OmniStraight shoestring straightener, a product developed by a team of former NASA scientists that's designed to straighten and untangle even the most convoluted shoestrings. OOPS! You might want to continue your pedestrian journey without me. It seems as though my handy OmniStraight shoestring straightener has inadvertently dissected my shoestring, mangled the upper half of my jogging shoe, and introduced several gashes to the top of my foot. As I faint face-first onto the sidewalk from the loss of blood, you can consider some of the ins and outs of my predicament.

Limping Through Some Options

What do I do in a situation like this? A product that I bought in good faith has not performed as promised. I've read and followed all instructions. I've cared for my OmniStraight shoestring straightener like it was a prized Stradivarius violin. However, a defective cog or malfunctioning lever or discombobulated spring has led to some injurious consequences. What to do? What to do?

I could return the OmniStraight shoestring straightener to Mega-Mart Discount Warehouse Super Center, the place of purchase, and request a refund. I'm sure they'll be accommodating. But even with a purchase price refund, I'm left with a dissected shoestring, a mangled jogging shoe, and several gashes in my foot.

Maybe OmniStraight will compensate me for the cost of my shoe and medical expenses. Or maybe they won't. What if they don't? I suspect I'm looking at an extended battle of legal wits with OmniStraight, their parent company Omni Conglomerate, Inc., and a veritable army of lawyer-types. Who knows how many other defective OmniStraight shoestring straighteners have been used by unsuspecting consumers. Does this sound like one of those David and Goliath sagas? Read on!

The Customer's Always Right?

Let's crunch our rather complex economy down into a simple, uncomplex nutshell. If I'm dissatisfied with my OmniStraight shoestring straightener, then I'm NOT about to buy another. Makes sense. In fact, with a bloodied foot I'm really, really, REALLY likely to tell other potential customers about my problem. If OmniStraight has enough defective products and thus dissatisfied customers who extend their horror stories to a number of potential shoestring straightener customers, then OmniStraight's business will suffer.

This devastating possibility gives OmniStraight a big incentive to turn out defective-free shoestring straighteners. If I'm the head, president-type, of OmniStraight, with a careful eye on my bottom-line profit, then I want to make sure that I have high-quality, defective-free shoestring straighteners. No complaints. No problems. A bunch of profit. Right?

Unfortunately it doesn't always work this way. My goal as president-type of OmniStraight is NOT to keep every customer happy with high-quality, defective-free shoestring straighteners -- in spite of what my commercials say. No, my goal is to make a profit. This can be accomplished in two ways:

  • I can charge high prices to customers who are exceedingly satisfied with high-quality, defective-free shoestring straighteners. Of course, while the production of high-quality, defective-free shoestring straighteners is costly, profits remain high as long as the exceedingly satisfied customers are exceedingly willing to pay exceedingly high prices for defective-free quality.

  • I can also make a bunch of profit by using inferior materials, eliminating quality control, and cutting whatever production corners are there to be cut -- anything and everything that can keep my cost down. Aha! This is obviously where defective products enter the picture.

But, isn't it best, profit-wise, to take the high road of high-quality, defective-free products? Won't I lose my customers if I crank out inferior shoestring straighteners? Where's profit without sales?

Here are a couple of reasons why it might be more profitable to take the low road and let some defective products escape the half-closed eyes of quality control inspectors:

  • First, making sure that EVERY shoestring straighteners is defective free is costly. Okay, so a few customers lose a toe or two, then they sue, and I end up with hefty legal cost and pay out tons of money for damages. It might be more profitable for me to go this law suit route, if my legal cost are less than my quality control cost.

  • Second, the low road can be profitable if I maintain demand. My biggest incentive to take the high-quality road is that word of defective products and disgruntled customers will decrease demand. If I can keep demand and price up while taking the low road of inferior, defective products, then my profit will be well into the lucrative range.

I have just two things to say about the profitability of taking the low road: information and market control.

What You See Isn't What You Get

Here's a shocking observation: We live in a very complex world. It's difficult, and growing moreso all of the time, to get all of the information you need about all of the products you buy and use. Going back to Fact 6, Our Unknown Economy, we know that information is a scarce and costly good. It's this cost that keeps us from knowing everything that we, as consumers, would like to know about the quality of cars, VCRs, toilet paper, and yes, even shoestring straighteners.

We could spend the time and effort needed to collect product information by reading through consumer publications, watching television to catch a random consumer feature on the nightly news, or digging through volumes of scientific reports buried in the deepest recesses of the library. But, hey, who's got the time?

The cost of information, however, is much less for producers and sellers because they own the good. They've designed it and produced it. It's easy, and relatively inexpensive, for them to know all about their good. You, the unsuspecting buyer, however, tend to know very little about it.

In fact, most, if not all, of the information we get about the stuff we buy comes from the sellers themselves -- usually through advertising. This, of course, is the same advertising that's created by the sellers who want nothing better than to sell you, the consumer, more of their product. You can probably already see some BIG potential problems with this situation. Here are two of my personal favorites:

  • One, sellers tell only the good, not the bad. Their objective with advertising is to sell products. They won't sell many products if potential buyers hear all sorts of bad things. Sellers have every incentive in the world to go out and discover anything good about their product -- even if it's not totally true. OmniStraight, for example, will do their best to find out and inform you if shoestring straighteners could be conceivable used to fasten your bow tie.

  • Two, not only won't sellers tell you about any known deficiencies in their products, they'll do their best to NOT discover them. And if they've discovered them, they'll do their best to keep this knowledge from you.

This unequal access to product information is in itself not totally devastating. News travels fast, and bad information travels really fast -- that is, when it can.

A Battle Between the Second and Third Estates

It's a harsh reality, as we saw in Fact 3, Our Unfair Lives, that ownership and control of our economic pie is not divided equally. Moreover, the mega-behemoth producers of the second estate tend to have a great deal more control over resources, production, and markets than consumers of the third estate. This, of course, includes product information.

Let's re-examine my nearly decapitated foot. OmniStraight has a defective product. In their defense, they may be unaware of its defects because they have little incentive to find out. But if they do know, they'll also do everything in their exceptionally abundant power to make sure that this information is not widely available. To what legal or illegal extremes they will go, is difficult to say. I suppose murder is out of the question -- unless it's the most cost-effective route.

In most cases, however, it's probably a matter of spending some big bucks on positive advertising, employing an army of security guards to protect information, intimidating disgruntled customers in court and forcing them to pay enormous legal fees, and of course using bribery and blackmail where appropriate.

Under the circumstances, I might be better off quietly buying a new pair of jogging shoes and paying my own medical costs. We need not bother OmniStraight about something as trivial as a defective shoestring straightener, do we?

Another Job for the First Estate

One of the big reasons we put up with government is that it protects the less powerful third estate against the sometimes malicious actions of the second. When the second estate becomes too powerful, the job of the first estate is to balanced out the scale. A whole bunch of government regulation, especially by the Consumer Product Safety Commission and Federal Trade Commission, is intended to do just that. Laws that deal with product safety is but one part of this whole regulation spectrum.

Here's how the first estate goes about protecting the third against the second:

  • Information. In that a lot of the product safety problems rest with the lack of information, a key role for government is to provide information to the consuming public. That's why several government agencies perform safety tests or require sellers to supply relevant information to consumers. Some of the most noted examples are ingredient labels on food products, mileage estimates on new cars, and drug testing that uncovers harmful side effects. Most consumers can make sound buying decisions when they know about potential risks or defects.

  • Safety standards. Some defects are just so potentially destructive that mere knowledge is insufficient. The government also imposes numerous safety standards on products. This includes health standards for food and drugs, construction inspections on new buildings, and assorted pollution emission standards on cars and factories.

  • Product recalls. The government is also inclined to force producers to fix defective stuff or otherwise remove them from store shelves. Cars, food, drugs, and children's toys are some of the goods that are most prone to recall because defects are discovered after they're produced.

We shouldn't leave the first estate and it's role in protecting consumers against defective products, without noting a few problems.

  • First, overzealous government-types, prompted by overzealous consumer groups, can overprotect consumers from time to time. Consumer protection needs to balance the risk from defective products against the satisfaction the products provide. Nothing in life is perfectly safe. Our world is an inherently risky place to live. If a product with a one in ten million chance of harming someone is removed from the market, then 9,999,999 satisfied consumers suffer for the protection of one.

  • Second, the first estate in it's role of protecting the third estate, frequently works on the behalf of the second. When this happens product safety actions can be used to protect sellers rather than buyers. One of the most common ways is to use safety standards, under the guise of protecting consumers, to restrict the entry of potential competing suppliers into a market. We want stringent standards for doctors and other health care workers, but we have to ask whether the standards do little more than keep competition out and prices high.

Tips for the Safety-Conscious Consumer

  • Our economy is inherently designed to send defective products into the hands of the consuming public. It will happen! Information can protect you from defects, noting of course that you can't find out everything. For example, the high price of a house probably warrants spending some bucks on an inspection. The same can be said about getting information before a potential car purchase. However, it's probably NOT worth the trouble to discover which brand of writing pencil is most reliable.

  • In spite of my somewhat cynical view of the second estate, many business do try to keep customers happy. If you get a defective product, let them know. This is your first recourse and in many cases, the business will probably do what they can to keep you satisfied. If not, it will give you useful documentation to pursue other options.

  • One of the other options is to get the government on your side. Many cities, most states, and a number of federal agencies have people that deal with product safety. Usually a call to the office of your state's Attorney General or your local District Attorney will set you on the right track. Local better business bureaus are also a good place to turn.

Scraping Up The POLLUTIONxxx A Perfect Picture Of PROFIT


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