Over the last decade a new shift variable has entered the consumer's demand function for goods: the product recall. While products recalled have included everything from baby formula to baby beds, little analysis has appeared which estimates the impact, if any, that the recall has on the demand for the specific product. Since unbiased information about product quality is not generally reported in the popular media, consumers may perceive the recall as a proxy for low quality and react accordingly. This demand impact may not be limited to the specific brand of the product recalled, but may also extend to other products carrying the same brand, to other products of the manufacturer and even to similar products (substitutes) of other manufacturers. The product which has become heavily identified with the recall is the automobile. This paper will analyze what impact, if any, recalls have on automobile demand - firstly, on the demand for the specific model recalled (e.g., Ford Pinto); secondly, on the demand for other models of the same make (e.g., all other Fords); and finally on the demand for similar models of other manufacturers (substitutes) (e.g., AMC GremlinSpirit, Chevrolet Vega-Monza-Chevette,etc.) The National Traffic and Motor Vehicle
Economic Inquiry – Wiley
Published: Oct 1, 1981
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