IDEAS home Printed from https://ideas.repec.org/a/spr/dyngam/v15y2025i1d10.1007_s13235-024-00591-6.html
   My bibliography  Save this article

Dynamic Pricing and Advertising Decisions to Mitigate the Negative Spillover Effect of a Product Recall

Author

Listed:
  • Arka Mukherjee

    (MacEwan University, City Centre Campus)

  • Satyaveer S. Chauhan

    (John Molson School of Business)

Abstract

Severe loss of reputation and its lasting effect on a firm’s sales are the consequences of a product harm crisis. Research shows that a product recall can result in a loss of goodwill for the firm responsible for the recall and its rival, especially when the rival is from the same country of origin. Alternatively, rival firms from different countries of origin may benefit from the recall. Firms often adjust pricing and advertising decisions in the post-recall period to mitigate a product recall’s harmful effect on profit. In our study, we investigate the negative spillover effect of a product recall on a firm. Using a differential game-theoretic framework, we analyze how pricing and advertising decisions for a firm and its rival differ in the pre-crisis and the post-crisis regimes. We also examine the impact of the crisis on firms’ profits. Based on our analysis, we highlighted suitable strategies for different recall impacts and likelihoods. We also find that the focal firm’s market leadership may not always be profitable during a product recall. Our findings highlight the importance of crisis likelihood and damage on which the firms’ decisions depend.

Suggested Citation

  • Arka Mukherjee & Satyaveer S. Chauhan, 2025. "Dynamic Pricing and Advertising Decisions to Mitigate the Negative Spillover Effect of a Product Recall," Dynamic Games and Applications, Springer, vol. 15(1), pages 154-181, March.
  • Handle: RePEc:spr:dyngam:v:15:y:2025:i:1:d:10.1007_s13235-024-00591-6
    DOI: 10.1007/s13235-024-00591-6
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s13235-024-00591-6
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.

    File URL: https://libkey.io/10.1007/s13235-024-00591-6?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Rubel, Olivier, 2018. "Profiting from product-harm crises in competitive markets," European Journal of Operational Research, Elsevier, vol. 265(1), pages 219-227.
    2. Olivier Rubel & Prasad A. Naik & Shuba Srinivasan, 2011. "Optimal Advertising When Envisioning a Product-Harm Crisis," Marketing Science, INFORMS, vol. 30(6), pages 1048-1065, November.
    3. Cleeren, K. & Dekimpe, M.G. & Helsen, K., 2008. "Weathering product-harm crises," Other publications TiSEM 283b51f8-dd35-4a10-930a-8, Tilburg University, School of Economics and Management.
    4. Zhao, Xiande & Li, Yina & Flynn, Barbara B., 2013. "The financial impact of product recall announcements in China," International Journal of Production Economics, Elsevier, vol. 142(1), pages 115-123.
    5. Yoo, Seung Ho & Cheong, Taesu, 2018. "Quality improvement incentive strategies in a supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 114(C), pages 331-342.
    6. Karray, Salma & Martín-Herrán, Guiomar, 2009. "A dynamic model for advertising and pricing competition between national and store brands," European Journal of Operational Research, Elsevier, vol. 193(2), pages 451-467, March.
    7. Lu, Lijue & Navas, Jorge, 2021. "Advertising and quality improving strategies in a supply chain when facing potential crises," European Journal of Operational Research, Elsevier, vol. 288(3), pages 839-851.
    8. Jean-Pierre Dubé & Puneet Manchanda, 2005. "Differences in Dynamic Brand Competition Across Markets: An Empirical Analysis," Marketing Science, INFORMS, vol. 24(1), pages 81-95, September.
    9. Carlos Arnade & Linda Calvin & Fred Kuchler, 2009. "Consumer Response to a Food Safety Shock: The 2006 Food-Borne Illness Outbreak of E. coli O157: H7 Linked to Spinach," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 31(4), pages 734-750.
    10. Yao, Liufang & Parlar, Mahmut, 2019. "Product recall timing optimization using dynamic programming," International Journal of Production Economics, Elsevier, vol. 210(C), pages 1-14.
    11. B. Viscolani & G. Zaccour, 2009. "Advertising Strategies in a Differential Game with Negative Competitor’s Interference," Journal of Optimization Theory and Applications, Springer, vol. 140(1), pages 153-170, January.
    12. Erickson, Gary M., 1995. "Differential game models of advertising competition," European Journal of Operational Research, Elsevier, vol. 83(3), pages 431-438, June.
    13. Mukherjee, Arka & Chauhan, Satyaveer S., 2021. "The impact of product recall on advertising decisions and firm profit while envisioning crisis or being hazard myopic," European Journal of Operational Research, Elsevier, vol. 288(3), pages 953-970.
    14. R. Cellini & L. Lambertini, 2003. "Advertising in a Differential Oligopoly Game," Journal of Optimization Theory and Applications, Springer, vol. 116(1), pages 61-81, January.
    15. Mukherjee, Arka & Carvalho, Margarida & Zaccour, Georges, 2023. "Managing quality and pricing during a product recall: An analysis of pre-crisis, crisis and post-crisis regimes," European Journal of Operational Research, Elsevier, vol. 307(1), pages 406-420.
    16. Seshadri Tirunillai & Gerard J. Tellis, 2012. "Does Chatter Really Matter? Dynamics of User-Generated Content and Stock Performance," Marketing Science, INFORMS, vol. 31(2), pages 198-215, March.
    17. Nair, Anand & Narasimhan, Ram, 2006. "Dynamics of competing with quality- and advertising-based goodwill," European Journal of Operational Research, Elsevier, vol. 175(1), pages 462-474, November.
    18. Anil Kaul & Dick R. Wittink, 1995. "Empirical Generalizations About the Impact of Advertising on Price Sensitivity and Price," Marketing Science, INFORMS, vol. 14(3_supplem), pages 151-160.
    19. Harald Van Heerde & Kristiaan Helsen & Marnik G. Dekimpe, 2007. "The Impact of a Product-Harm Crisis on Marketing Effectiveness," Marketing Science, INFORMS, vol. 26(2), pages 230-245, 03-04.
    20. Dockner,Engelbert J. & Jorgensen,Steffen & Long,Ngo Van & Sorger,Gerhard, 2000. "Differential Games in Economics and Management Science," Cambridge Books, Cambridge University Press, number 9780521637329, June.
    21. Kathleen Cleeren & Marnik G. Dekimpe & Harald J. Heerde, 2017. "Marketing research on product-harm crises: a review, managerial implications, and an agenda for future research," Journal of the Academy of Marketing Science, Springer, vol. 45(5), pages 593-615, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mukherjee, Arka & Chauhan, Satyaveer S., 2021. "The impact of product recall on advertising decisions and firm profit while envisioning crisis or being hazard myopic," European Journal of Operational Research, Elsevier, vol. 288(3), pages 953-970.
    2. Li, Huashan & Bapuji, Hari & Talluri, Srinivas & Singh, Prakash J., 2022. "A Cross-disciplinary review of product recall research: A stakeholder-stage framework," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 163(C).
    3. Mukherjee, Arka & Carvalho, Margarida & Zaccour, Georges, 2023. "Managing quality and pricing during a product recall: An analysis of pre-crisis, crisis and post-crisis regimes," European Journal of Operational Research, Elsevier, vol. 307(1), pages 406-420.
    4. Jafarzadeh Ghazi, Amirhossein & Karray, Salma & Azad, Nader, 2023. "Price and quality competition while envisioning a quality-related product recall," European Journal of Operational Research, Elsevier, vol. 311(2), pages 486-501.
    5. Jinhui Han & Suresh P. Sethi & Chi Chung Siu & Sheung Chi Phillip Yam, 2023. "Co‐op advertising in randomly fluctuating markets," Production and Operations Management, Production and Operations Management Society, vol. 32(6), pages 1617-1635, June.
    6. De Giovanni, Pietro & Zaccour, Georges, 2023. "A survey of dynamic models of product quality," European Journal of Operational Research, Elsevier, vol. 307(3), pages 991-1007.
    7. Lu, Lijue & Navas, Jorge, 2021. "Advertising and quality improving strategies in a supply chain when facing potential crises," European Journal of Operational Research, Elsevier, vol. 288(3), pages 839-851.
    8. Alfred Z. Liu & Angela Xia Liu & Sangkil Moon & Donald Siegel, 2024. "Does Corporate Social Responsibility Always Result in More Ethical Decision-Making? Evidence from Product Recall Remediation," Journal of Business Ethics, Springer, vol. 191(3), pages 443-463, May.
    9. Huang, Jian & Leng, Mingming & Liang, Liping, 2012. "Recent developments in dynamic advertising research," European Journal of Operational Research, Elsevier, vol. 220(3), pages 591-609.
    10. Zhe Ouyang & Xiaojiao Wang & Yang Liu, 2024. "The use of corporate social responsibility in response to product‐harm crisis: How do stock market reactions matter?," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(4), pages 3081-3097, July.
    11. Lu Zhang & Deqing Ma & Jinsong Hu, 2021. "Research on the Sustainable Operation of Low-Carbon Tourism Supply Chain under Sudden Crisis Prediction," Sustainability, MDPI, vol. 13(15), pages 1-25, July.
    12. Raoul V. Kübler & Michael Langmaack & Sönke Albers & Wayne D. Hoyer, 2020. "The impact of value-related crises on price and product-performance elasticities," Journal of the Academy of Marketing Science, Springer, vol. 48(4), pages 776-794, July.
    13. Chen Zhou & Shrihari Sridhar & Rafael Becerril-Arreola & Tony Haitao Cui & Yan Dong, 2019. "Promotions as competitive reactions to recalls and their consequences," Journal of the Academy of Marketing Science, Springer, vol. 47(4), pages 702-722, July.
    14. Kathleen Cleeren & Marnik G. Dekimpe & Harald J. Heerde, 2017. "Marketing research on product-harm crises: a review, managerial implications, and an agenda for future research," Journal of the Academy of Marketing Science, Springer, vol. 45(5), pages 593-615, September.
    15. Yang Gao & Wenjing Duan & Huaxia Rui, 2022. "Does Social Media Accelerate Product Recalls? Evidence from the Pharmaceutical Industry," Information Systems Research, INFORMS, vol. 33(3), pages 954-977, September.
    16. Mridula S. Mishra & Ruppal W. Sharma, 2019. "Brand Crisis-Sentiment Analysis of User-Generated Comments About @Maggi on Facebook," Corporate Reputation Review, Palgrave Macmillan, vol. 22(2), pages 48-60, May.
    17. Alexander Mafael & Sascha Raithel & Stefan J. Hock, 2022. "Managing customer satisfaction after a product recall: the joint role of remedy, brand equity, and severity," Journal of the Academy of Marketing Science, Springer, vol. 50(1), pages 174-194, January.
    18. Olga Untilov & Stéphane Ganassali, 2020. "Product‐harm science communication: The halo effect and its moderators," Journal of Consumer Affairs, Wiley Blackwell, vol. 54(3), pages 1002-1027, September.
    19. Valeria L M A Freundt & Luiza Venzke Bortoli Foschiera, 2024. "The Impact of Voluntary Recall on the Trust of Loyal and First-Time Consumers in a High Awareness Brand After a Functional Transgression," Corporate Reputation Review, Palgrave Macmillan, vol. 27(3), pages 172-184, August.
    20. Vaid, Shashank & Donthu, Naveen, 2023. "When injured product users may also stay satisfied: A macro-level analysis," Journal of Business Research, Elsevier, vol. 162(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:dyngam:v:15:y:2025:i:1:d:10.1007_s13235-024-00591-6. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.