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Products liability when consumers are salient thinkers

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  • Friehe, Tim
  • Pham, Cat Lam

Abstract

This paper analyzes how product liability influences choices by a brand manufacturer who faces competition from a competitive fringe when consumers are salient thinkers. The market outcome critically depends on the losses that are shifted to the firm, that is, the traditional irrelevance of liability assignments no longer holds. Moreover, we show that the brand manufacturer implements suboptimal product safety and explain that the firm, if subjected to the negligence rule, may choose to be negligent.

Suggested Citation

  • Friehe, Tim & Pham, Cat Lam, 2020. "Products liability when consumers are salient thinkers," Economics Letters, Elsevier, vol. 186(C).
    • Handle: RePEc:eee:ecolet:v:186:y:2020:i:c:s0165176519304240
    DOI: 10.1016/j.econlet.2019.108844
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    References listed on IDEAS

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    1. Luis C. Corchón & Marco A. Marini (ed.), 2018. "Handbook of Game Theory and Industrial Organization, Volume II," Books, Edward Elgar Publishing, number 17978.
    2. Andrew F. Daughety & Jennifer F. Reinganum, 2018. "Market structure, liability, and product safety," Chapters, in: Luis C. Corchón & Marco A. Marini (ed.), Handbook of Game Theory and Industrial Organization, Volume II, chapter 9, pages 225-247, Edward Elgar Publishing.
    3. Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2013. "Salience and Consumer Choice," Journal of Political Economy, University of Chicago Press, vol. 121(5), pages 803-843.
    4. Fabian Herweg & Daniel Müller & Philipp Weinschenk, 2018. "Salience in markets," Chapters, in: Victor J. Tremblay & Elizabeth Schroeder & Carol Horton Tremblay (ed.), Handbook of Behavioral Industrial Organization, chapter 4, pages 75-113, Edward Elgar Publishing.
    5. Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2016. "Competition for Attention," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 83(2), pages 481-513.
    6. Victor J. Tremblay & Elizabeth Schroeder & Carol Horton Tremblay (ed.), 2018. "Handbook of Behavioral Industrial Organization," Books, Edward Elgar Publishing, number 16609.
    7. Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2015. "Salience Theory of Judicial Decisions," The Journal of Legal Studies, University of Chicago Press, vol. 44(S1), pages 7-33.
    8. repec:reg:rpubli:575 is not listed on IDEAS
    9. Roman Inderst & Martin Obradovits, 2020. "Loss leading with salient thinkers," RAND Journal of Economics, RAND Corporation, vol. 51(1), pages 260-278, March.
    10. Herweg, Fabian & Müller, Daniel & Weinschenk, Philipp, 2017. "Salience, competition, and decoy goods," Economics Letters, Elsevier, vol. 153(C), pages 28-31.
    11. Florian Baumann & Tim Friehe & Alexander Rasch, 2018. "Product Liability in Markets for Vertically Differentiated Products," American Law and Economics Review, American Law and Economics Association, vol. 20(1), pages 46-81.
    12. Mungan, Murat C., 2019. "Salience and the severity versus the certainty of punishment," International Review of Law and Economics, Elsevier, vol. 57(C), pages 95-100.
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    Cited by:

    1. Friehe, Tim & Pham, Cat Lam, 2020. "Settling with salience-biased defendants," Economics Letters, Elsevier, vol. 192(C).
    2. Helfrich, Magdalena & Herweg, Fabian, 2020. "Context-dependent preferences and retailing: Vertical restraints on internet sales," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 87(C).

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    More about this item

    Keywords

    Product liability; Salience; Competition;
    All these keywords.

    JEL classification:

    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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