DIFFICULT MORAL QUESTIONS

Question 146: May someone who buys used goods take advantage of sellers’ ignorance?

Recently I was able to take over the jewelry shop where I have worked part time for the last eight years. A small but significant part of the business is buying used items. Sometimes the sellers are heirs who do not care to keep inherited items or divorced women who want to get rid of jewelry their ex-husbands gave them. But often they are people who simply need money and would probably pawn the items if there were a pawn shop nearby.

People generally don’t know the value of what they want to sell. Those who know the purchase price of a piece of jewelry usually have a grossly exaggerated idea of its value, while those who don’t, often are willing to accept a minimal offer. The former owner took advantage of such opportunities, and so do I. But I am not always entirely at ease about it.

I don’t lie. If someone asks: “How much is this item worth?” I do not answer directly, but explain that many factors affect the value of jewelry, and ask whether the person is offering to sell the item. When someone wants an appraisal—for instance, to determine how much insurance coverage to buy—I help them without charge if I can; it builds good will for the business. But if someone wants to sell something, my usual practice is to begin by offering about half of what I think I can get for it. When I make the offer—“I can give you so many dollars for this item”—I also frankly say it might bring more elsewhere, especially if the owner can sell it directly to someone who wants it. Most people accept my offer or make an acceptable counteroffer; I never pay more than I am certain I can get. The result almost always is profitable, sometimes very much so.

For instance, recently a young man brought in a large gold medal he had just inherited from his mother; it was a foreign military decoration handed down in her family. I weighed it, estimated I could get about six hundred dollars for the gold, and offered him three hundred. He resisted, we bargained, and I bought it for five hundred. I suspected the medallion might be valuable, and it turned out to be a collectors’ item. I got six thousand dollars from its sale by a New York auction house, and am well satisfied with the deal.

Still, as I said, I sometimes have qualms, particularly when dealing with people who simply need money. A while back, a middle-aged couple in financial straits brought in the wife’s diamond engagement ring. Unlike most people, they realized that used jewelry is worth only a fraction of its purchase price. I estimated that the stones would bring me at least nine hundred dollars and the gold about one hundred, and offered five hundred. The husband asked whether they would get as much from a pawn shop in the city. If I had thought so, I would have encouraged them to go there. But I was quite sure they would not. The wife hesitated, obviously hating to part with her ring. Imagining how my own wife would feel, I told them my price would hold for ten days if they wished to try elsewhere or think about it. But they accepted my offer, and the ring brought just under twelve hundred dollars.

Analysis:

Given the questioner’s exclusion of lying, this ethical question has three parts: whether the practice described is deceptive, otherwise fair, and merciful. It does not seem deceptive, since the nature of the situation and the warnings the questioner gives should be sufficient to alert most people that bargaining is appropriate and they might obtain a better price elsewhere. In other respects, the fairness of the practice depends on whether it fulfills or violates a previously established relationship with the seller. By this criterion, the practice does seem acceptable in dealing with sellers with whom the shopkeeper has not done other business, but not in dealing with trusting customers whose expectations have been shaped by transactions of other sorts. Finally, if he can afford to be merciful, people plainly in need should be treated more generously.

The reply could be along the following lines:

In dealing with your customers, you manifest virtues not always shown by people engaged in similar activities. You not only avoid lying but provide at least some information to help customers look after their legitimate interests. You also were decent in offering the married couple time to seek a better price for the ring. And the sensitivity of conscience that leads you to raise these questions is commendable.

Problems like yours arise in many other businesses. Dealers buy used books, antiques, art objects, and so forth; different sellers vary greatly in sophistication and determination to find the best market for their goods; values are seldom easy to determine, and prices are set by bargaining. Many dealers follow essentially the policy you do, and I do not think what they do is generally regarded as unethical, provided they tell no lies.

But dealers sometimes deceive people even without lying—for example, by proceeding in ways that deliberately forestall bargaining by falsely suggesting an item’s value is more definite and certain than it is. Still, your practice as you describe it does not seem deceptive. Explaining that many factors affect an item’s value and clarifying the nature of the potential transaction should warn people that your initial offer is for bargaining purposes. By doing nothing to persuade people that their items certainly are not worth more than your offer, you avoid deceiving them, even when you benefit from their ignorance, as you did in purchasing the gold medallion. And saying an item might bring a better price elsewhere should alert them that they might be wise to investigate further.

Someone might argue that it is unfair of you to begin bargaining by offering only about half what you think an item is worth. In the absence of deception, however, making an initial low offer is not unfair in a bargaining situation. Any business that buys used items must limit how much it pays for them so that the expected sale price will yield a reasonable profit after covering all the costs of doing business: interest on investment, overhead, insurance, taxes, and so on.³⁴⁸ I assume you also occasionally make a costly mistake, and run some risk, impossible to eliminate, of being defrauded by someone disposing of a stolen item.

Again, someone looking at the matter only from the perspective of isolated transactions might argue that to retain a greater-than-average—and especially a greater-than-expected—profit from any transaction necessarily is unfair. But individual transactions are possible only if a business survives, and it can do that only if it makes a reasonable profit over time. Transactions that yield little or no profit or even result in a loss must be offset by others yielding a greater-than-average profit. And transactions that result in unexpected profits are offset by others that result in unexpected losses.

It might seem that taking advantage of ignorance, as you did in purchasing the medallion, is unfair even if not deceptive. Of course, it is unfair to take advantage of people so immature or mentally handicapped that they are incompetent to do business. Moreover, people who previously have had you do repair work and/or purchased items from you may have established a relationship with you based on trust that you will use your expertise to their advantage, charging for your merchandise and services only enough to make a fair profit on each transaction. Since such customers naturally expect you to act consistently within your established relationship with them, you abuse trust, in my judgment, if you make significantly more than your usual margin of profit on items of extraordinary value that you purchase from them. Thus, if the young man who sold you the medallion previously had done business with the shop and on that basis expected to be treated differently than he was, you should have handled the transaction differently, and now should share the proceeds with him on the basis of the profit margin in previous dealings with him.

In future cases of this sort, you could serve your customers fairly by proposing to act as their agent in disposing of items of uncertain value, setting a reasonable commission, and fully sharing with them the benefits of your expertise and their trust. That also might well help build good will for your business and so be to your own advantage in the long run.

However, competent people who have not previously done business with you and sell you items without first investigating their value have no basis for expecting you to act differently than people usually do in bargaining situations, and so they freely choose to risk getting significantly less than they might. Since they could obtain a professional appraisal of any item they wish to sell and look into other markets for it, they are responsible for their own ignorance. Therefore, taking advantage of it need not be unfair.

This can be confirmed by considering somewhat similar transactions in which knowledgeable collectors buy items from businesses or other sellers unaware of their true value. Suppose the man who sold you the medallion had instead hired an auctioneer to sell it and other items he inherited. If a collector aware of the medallion’s value successfully bid five hundred dollars for it, no reasonable person would regard that as unfair to the seller. Again, few people would condemn a collector of rare books who finds one worth a thousand dollars in a used book store and buys it from the prosperous shopkeeper who, failing to recognize its value, has priced it at only ten.

Financially distressed people are due special consideration. It is unjust to take advantage of such a person’s need by driving a harder bargain than with someone less pressed for cash. Moreover, if your other responsibilities permit, you should be merciful to those in special need. For example, even if the couple who sold you the wife’s engagement ring had not previously done business with you, you might have promised them that, if the ring brought more than the estimate on which you based your five-hundred-dollar offer, you would send them an additional payment. And, having received nearly two hundred dollars more than the minimum you expected, you should consider giving them this extra profit or, if you cannot afford that, at least sharing part of it with them.

348. On the just limits to profit, see LCL, 832.