Product reliability, consumers’ complaints and market performance: the case of consumers’ associations
AbstractIn their dealings with retailers and suppliers, regulations and warranties ensure that consumers can seek a repair, a replacement or a refund if the good they have purchased is faulty. The evidence, however, indicates that few consumers pursue any form of compensation, suggesting that, for most consumers, transaction costs are high and providing a rationale for the role that consumers’ associations play. In this paper, we analyze the monopolist’s pricing and product reliability problem when consumers are entitled to product replacement and assess the implications of a decrease in consumers’ transaction costs. Our results suggest that the appearance of the consumers’ associations could, instead, lower product reliability. We draw empirical evidence from the pattern of recalls and complaints in the U.S. car market around 1995 (the year in which the National Highway Traffic Safety Administration (NHTSA) incorporated on-line filings) and find that it appears consistent with this prediction.
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Bibliographic InfoPaper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we1121.
Date of creation: Aug 2011
Date of revision:
product reliability; consumers’ association; consumers’ claims; liability cost;
Find related papers by JEL classification:
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
- D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-09-16 (All new papers)
- NEP-LAW-2011-09-16 (Law & Economics)
- NEP-MKT-2011-09-16 (Marketing)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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