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Product liability and reasonable product use

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Listed:
  • Baumann, Florian
  • Rasch, Alexander

Abstract

We analyze a monopolist who offers different variants of a possibly dangerous product to heterogeneous customers. Product variants are distinguished by different safety attributes. Customers choose product usage which co- determines expected harm. We find that, even with customers being perfectly informed about product variants' safety, product liability can further welfare by limiting the firm's incentives to distort product safety in pursuance of profit- maximizing price discrimination. In this context, strict liability has to be accompanied by a defense of product misuse, but reasonable use of the base product variant should be defined more leniently than what an application of the Hand rule or instructions in user manuals might prescribe.

Suggested Citation

  • Baumann, Florian & Rasch, Alexander, 2020. "Product liability and reasonable product use," ZEW Discussion Papers 20-071, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:20071
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    File URL: https://www.econstor.eu/bitstream/10419/226704/1/1741737656.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Comparative negligence; Price discrimination; Product liability; Product use;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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