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Warranty regulation and consumer demand: evidence from China’s automobile market

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  • Qi Sun

    (Shanghai University of Finance and Economics)

  • Fang Wu

    (Shanghai University of Finance and Economics)

Abstract

Although government regulations on product warranties are common, few studies have empirically examined their effects on product demand. Using a natural experiment, we examine the effect of a newly introduced government warranty regulation in China’s automobile market on product demand. Exploiting the exogenous variation in warranty coverage caused by the regulation, we apply a difference-in-differences analysis and find that the regulation increases the sales of the affected vehicles. Moreover, we find that (1) the demand effects of the regulation decrease as vehicle quality increases, and that (2) these effects are weaker for luxury brand vehicles and stronger for non-luxury vehicles.

Suggested Citation

  • Qi Sun & Fang Wu, 2016. "Warranty regulation and consumer demand: evidence from China’s automobile market," Journal of Regulatory Economics, Springer, vol. 49(2), pages 152-171, April.
    • Handle: RePEc:kap:regeco:v:49:y:2016:i:2:d:10.1007_s11149-015-9291-1
    DOI: 10.1007/s11149-015-9291-1
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    References listed on IDEAS

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    Cited by:

    1. Qi Sun & Fang Wu & Shanjun Li & Rajdeep Grewal, 2021. "Consumer Boycotts, Country of Origin, and Product Competition: Evidence from China’s Automobile Market," Management Science, INFORMS, vol. 67(9), pages 5857-5877, September.

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    More about this item

    Keywords

    Warranty; Warranty regulation; Automobile market; Natural experiment;
    All these keywords.

    JEL classification:

    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy

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