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Product Liability in Markets for Vertically Differentiated Products

Author

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  • Florian Baumann
  • Tim Friehe
  • Alexander Rasch

Abstract

This article shows that shifting losses from consumers with heterogeneous harm levels to vertically differentiated duopolists increases product safety levels, while narrowing the degree of product differentiation. Our setup features observable (but possibly nonverifiable) product safety levels and firms subject to strict liability according to a parametric liability specification. Firms’ expected liability payments depend on both product safety and price levels which critically influences the repercussions of shifting losses to firms. From a social standpoint, shifting some losses to firms is always beneficial.

Suggested Citation

  • 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.
    • Handle: RePEc:oup:amlawe:v:20:y:2018:i:1:p:46-81.
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    File URL: http://hdl.handle.net/10.1093/aler/ahx013
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    References listed on IDEAS

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    Cited by:

    1. Eric Langlais & Andreea Cosnita-Langlais, 2022. "Incentives to differentiate under environmental liability laws : Product customization and precautionary effort," EconomiX Working Papers 2022-20, University of Paris Nanterre, EconomiX.
    2. Tsvetanov, Tsvetan & Miceli, Thomas J. & Segerson, Kathleen, 2021. "Products liability with temptation bias," Journal of Economic Behavior & Organization, Elsevier, vol. 186(C), pages 76-93.
    3. Eric Langlais & Andreea Cosnita-Langlais, 2022. "Endogenous market structures, product liability, and the scope of product differentiation," Working Papers hal-04159801, HAL.
    4. Baumann, Florian & Friehe, Tim, 2021. "Products liability, consumer misperceptions, and the allocation of consumers to firms," Economics Letters, Elsevier, vol. 198(C).
    5. Eric Langlais & Andreea Cosnita-Langlais & Tim Friehe, 2024. "Product Liability Influences Incentives for Horizontal Mergers," EconomiX Working Papers 2024-10, University of Paris Nanterre, EconomiX.
    6. Charreire, Maxime & Langlais, Eric, 2021. "Should environment be a concern for competition policy when firms face environmental liability?," International Review of Law and Economics, Elsevier, vol. 67(C).
    7. Tim Friehe & Cat Lam Pham & Thomas J. Miceli, 2022. "Product Liability and Strategic Delegation: Endogenous Manager Incentives Promote Strict Liability," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 61(2), pages 149-169, September.
    8. Baumann, Florian & Rasch, Alexander, 2020. "Product liability and reasonable product use," ZEW Discussion Papers 20-071, ZEW - Leibniz Centre for European Economic Research.
    9. Friehe, Tim & Pham, Cat Lam, 2020. "Products liability when consumers are salient thinkers," Economics Letters, Elsevier, vol. 186(C).
    10. Christoph Rössler & Tim Friehe, 2020. "Liability, morality, and image concerns in product accidents with third parties," European Journal of Law and Economics, Springer, vol. 50(2), pages 295-312, October.

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