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Product Recalls, Imperfect Information, and Spillover Effects: Lessons from the Consumer Response to the 2007 Toy Recalls

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Listed:
  • Seth Freedman

    (University of Michigan and Indiana University)

  • Melissa Kearney

    (University of Maryland and NBER)

  • Mara Lederman

    (Rotman School of Management, University of Toronto)

Abstract

In 2007, the Consumer Product Safety Commission issued 212 recalls of toys and other children's products, a sizable increase from previous years. We investigate changes in toy sales following these recalls. We find that for manufacturers that had recalls, unit sales of the types of toys involved in the recall fell relative to their sales of toys in other categories. We do not find evidence of within-manufacturer spillovers to dissimilar toys. We do, however, find large industry-wide spillovers in the form of sales losses to manufacturers that did not experience any recalls. Our results shed light on how consumers may draw inferences from information about product safety. © 2012 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Seth Freedman & Melissa Kearney & Mara Lederman, 2012. "Product Recalls, Imperfect Information, and Spillover Effects: Lessons from the Consumer Response to the 2007 Toy Recalls," The Review of Economics and Statistics, MIT Press, vol. 94(2), pages 499-516, May.
  • Handle: RePEc:tpr:restat:v:94:y:2012:i:2:p:499-516
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    Cited by:

    1. Cagé, Julia & Rouzet, Dorothée, 2015. "Improving “national brands”: Reputation for quality and export promotion strategies," Journal of International Economics, Elsevier, vol. 95(2), pages 274-290.
    2. Chantal Toledo & Sofia Berto Villas-Boas, "undated". "Safe or Not? Consumer Responses to Recalls with Traceability," Mathematica Policy Research Reports 3df01be0184744ba8ae8743fa, Mathematica Policy Research.
    3. Collins, J. Michael & Simon, Kosali I. & Tennyson, Sharon, 2013. "Drug withdrawals and the utilization of therapeutic substitutes: The case of Vioxx," Journal of Economic Behavior & Organization, Elsevier, vol. 86(C), pages 148-168.
    4. Rudi, Jeta & Çakir, Metin, 2015. "Demand Spillovers of Food Recalls in Differentiated Product Markets," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205313, Agricultural and Applied Economics Association.
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    6. repec:bla:reviec:v:26:y:2018:i:1:p:223-256 is not listed on IDEAS
    7. Sandra Poncet & Meina Xu, 2018. "Quality screening and trade intermediaries: Evidence from China," Review of International Economics, Wiley Blackwell, vol. 26(1), pages 223-256, February.
    8. Forbes Silke & Gordon Nora, 2012. "When Educators Are the Learners: Private Contracting by Public Schools," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-29, July.
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    12. repec:cup:jagaec:v:46:y:2014:i:04:p:559-573_02 is not listed on IDEAS
    13. Rosa Ferrer & Helena Perrone, 2017. "Consumers’ Costly Responses to Product-Harm Crises," Working Papers 975, Barcelona Graduate School of Economics.
    14. Zarebanadkoki, Samane & Zheng, Yuqing & Woods, Timothy & Buck, Steven, 2016. "Examining the Effect of Food Recalls on Demand: The Case of Ground Beef in the U.S," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 236112, Agricultural and Applied Economics Association.
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    16. K. Sudhir & Nathan Yang, 2014. "Exploiting the Choice-Consumption Mismatch: A New Approach to Disentangle State Dependence and Heterogeneity," Cowles Foundation Discussion Papers 1941, Cowles Foundation for Research in Economics, Yale University.
    17. Bakhtavoryan, Rafael & Capps, Oral & Salin, Victoria, 2014. "The Impact of Food Safety Incidents Across Brands: The Case of the Peter Pan Peanut Butter Recall," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 46(04), pages 559-573, November.
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    More about this item

    Keywords

    product recalls; toys; toy recalls; consumer response; manufacturers;

    JEL classification:

    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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