Product reliability, consumers’ complaints and market performance: the case of consumers’ associations
In 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.
|Date of creation:||Aug 2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +34-91 6249594
Fax: +34-91 6249329
Web page: http://www.eco.uc3m.es
More information through EDIRC
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.:
- Daughety, Andrew & Reinganum, Jennifer, 1992.
"Product Safety: Liability, R & D and Signaling,"
94-17, University of Iowa, Department of Economics, revised 1994.
- David P. Myatt & Justin P. Johnson, 2004.
"On the Simple Economics of Advertising, Marketing, and Product Design,"
Economics Series Working Papers
185, University of Oxford, Department of Economics.
- Justin P. Johnson & David P. Myatt, 2006. "On the Simple Economics of Advertising, Marketing, and Product Design," American Economic Review, American Economic Association, vol. 96(3), pages 756-784, June.
- Heski Bar-Isaac & Guillermo Caruana & Vicente Cuñat, 2010.
"Information Gathering and Marketing,"
Journal of Economics & Management Strategy,
Wiley Blackwell, vol. 19(2), pages 375-401, 06.
- Greif, Avner & Milgrom, Paul & Weingast, Barry R, 1994. "Coordination, Commitment, and Enforcement: The Case of the Merchant Guild," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 745-76, August.
- Rupp, Nicholas G & Taylor, Curtis R, 2002. "Who Initiates Recalls and Who Cares? Evidence from the Automobile Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 50(2), pages 123-49, June.
When requesting a correction, please mention this item's handle: RePEc:cte:werepe:we1121. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.