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The B.E. Journal of Economic Analysis & Policy

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Ed. by Auriol, Emmanuelle / Barigozzi, Francesca / Brunner, Johann / Fleck, Robert / Mastrobuoni, Giovanni / Mendola, Mariapia / Requate, Till / de Vries, Frans / Wenzel, Tobias / Zulehner, Christine

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Volume 14, Issue 4


Volume 6 (2006)

Volume 4 (2004)

Volume 2 (2002)

Volume 1 (2001)

Producer Liability and Competition Policy When Firms Are Bound by a Common Industry Reputation

Andrzej Baniak / Peter Grajzl
  • Corresponding author
  • Department of Economics, The Williams School, Washington and Lee University, Lexington, VA 24450, USA
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/ A. Joseph Guse
Published Online: 2014-05-03 | DOI: https://doi.org/10.1515/bejeap-2013-0168


We contrast the laissez-faire regime with the regime of strict producer liability and draw the implications for competition policy in a setting where oligopolistic firms cannot differentiate themselves from rivals but rather are bound by a common industry reputation for product safety. We show that, first, unlike in the traditional products liability model, firms’ incentives to invest in precaution depend on market structure. Second, depending on the magnitude of expected damages awarded by the courts, laissez-faire can welfare dominate strict producer liability. Third, the relationship between social welfare and industry size, and hence the role for competition policy, depends on the institutional regime governing the industry. Under some circumstances, restricting industry size is unambiguously welfare-enhancing.

Keywords: products liability; industry reputation; oligopoly; industry size; competition policy

JEL Classification: K13; L13; D43


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About the article

Published Online: 2014-05-03

Published in Print: 2014-10-01

Citation Information: The B.E. Journal of Economic Analysis & Policy, Volume 14, Issue 4, Pages 1645–1676, ISSN (Online) 1935-1682, ISSN (Print) 2194-6108, DOI: https://doi.org/10.1515/bejeap-2013-0168.

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