Accounting 26th Edition by Carl Warren ,Jim Reeve ,Jonathan Duchac

Exercise 31

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.