What Is Caveat Emptor & Consumer Sovereignty?

Written by elise moore
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What Is Caveat Emptor & Consumer Sovereignty?
The age of ethics in business often favours consumers' interests. (consumer girl image by Lev Dolgatshjov from Fotolia.com)

According to Professor N. Craig Smith, chair in ethics and social responsibility at INSEAD in Fontainebleau, France, marketing can no longer be guided by the traditional notion of caveat emptor in “the ethics era.” Instead, marketing should be guided by the concept of consumer sovereignty.


Under caveat emptor, or "let the buyer beware," the only right of consumers was to veto purchase, as Crane and Matten explain in “Business Ethics: Managing Corporate Citizenship and Sustainability in the Age of Globalization.”


In the latter half of the 20th century, the caveat emptor notion began to erode, and consumer protection laws were introduced in most developed countries.


Consumer sovereignty is the notion that under perfect competition, consumer demand drives the market and businesses respond with supply. Hence, the consumer is king or “sovereign” in the market.


In the real market, the consumer may not have enough information to find the best deal. Choices may be limited by insufficient competition in a market, or firms in monopolistic positions may exploit consumers with high prices.


Professor Smith suggests consumer sovereignty as an ideal for marketing ethics. In the 1995 article "Marketing Strategies for the Ethics Era," Smith proposed a consumer sovereignty test (CST) based on consumer capability, information and choice as a tool for evaluating exchanges and markets.

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