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

Author

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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    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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