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Product reliability, consumers’ complaints and market performance: the case of consumers’ associations

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  • Coleff, Joaquín

Abstract

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.

Suggested Citation

  • Coleff, Joaquín, 2011. "Product reliability, consumers’ complaints and market performance: the case of consumers’ associations," UC3M Working papers. Economics we1121, Universidad Carlos III de Madrid. Departamento de Economía.
  • Handle: RePEc:cte:werepe:we1121
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    References listed on IDEAS

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    1. Daughety, Andrew F & Reinganum, Jennifer F, 1995. "Product Safety: Liability, R&D, and Signaling," American Economic Review, American Economic Association, vol. 85(5), pages 1187-1206, December.
    2. 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, June.
    3. 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 123-149, June.
    4. 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.
    5. 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 745-776, August.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Product reliability;

    JEL classification:

    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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