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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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BuyFindarrow_forward

Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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Ethics in Action

Netbooks Inc. provides accounting applications for business customers on the Internet for a monthly subscription. Netbooks customers run their accounting system on the Internet; thus, the business data and accounting software reside on the servers of Netbooks Inc. The senior management of Netbooks believes that once a customer begins to use Netbooks, it is very difficult to cancel the service. That is, customers are “locked in” because it is difficult to move the business data from Netbooks to another accounting application even though the customers own their own data. Therefore, Netbooks has decided to entice customers with an initial low monthly price that is half the normal monthly rate for the first year of services. After a year, the price will be increased to the regular monthly rate. Netbooks management believes that customers will have to accept the full price because customers will be “locked in’* after one year of use.

a.    Discuss whether the half-price offer is an ethical business practice.

b.    Discuss whether customer “lock-in” is an ethical business practice.

(a)

To determine

Ethics in Action

Question Summary

Company N provides accounting applications for business customers on the internet for a monthly subscription. Customers of the Company N run their accounting system on the internet. Thus the business data and accounting software of the customers reside on the servers of the Company N. The senior management of the Company believes that once a customer starts using Netbooks, then it is very difficult to cancel the service. The customers are locked in because it is difficult to move the business data from netbooks to another accounting application even though customers own their own data. Therefore Company N has decided to entice customers with an initial low monthly price that is half the normal monthly rate for the first year of the services. After a year, the price will be increased to the regular monthly rate. The management of the company N believes that the customers will have to accept it because customers will be locked in after one year of use.

To explain: If the half-price offer is an ethical business practice.

Explanation

Many companies use price penetrating method i.e. low initial pricing to increase their number of customers...

(b)

To determine

To explain: If the customer lock in is an ethical practice.

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