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Market-Based Solutions to Vital Economic Issues


Kenan Institute 2024 Grand Challenge: Business Resilience
Market-Based Solutions to Vital Economic Issues
Aug 8, 2022

Product Recalls in B2b Secondary Markets: Evidence from the U.S. Automobile Industry


Adverse events, such as product recalls, transcend business-to-business (B2B) secondary markets (i.e., used product markets). Yet, little, if any, is known about the impact of such adverse events on purchase responses of B2B buyers (i.e., channel intermediaries). The current study addresses this research gap in the empirical context of product recalls in the U.S. automobile secondary market. Using a rich database containing individual vehicle-specific purchases by channel intermediaries (auto dealers in our setting), the authors exploit the quasi-natural exogenous timing of recalls to quantify heterogeneous impact of recalls on price across product segments and automakers. Besides a negative direct effect on the recalled product (decrease in price of around 10%), findings reveal the co-existence of positive and negative spillover effects, which are contingent on the product segment. Non-recalled products that belong to the same segment as the recalled product experience a negative spillover effect, which affects both the recalled automaker and non-recalled automakers, leading to a 5.54%-5.63% drop in prices. In contrast, a positive spillover effect, which only affects the recalled automaker, leads to a 4.91% price increase for the products that belong to a different segment. These insights contribute to the sparse literature on the impact of product-harm crises in B2B markets.

Note: Research papers posted on SSRN, including any findings, may differ from the final version chosen for publication in academic journals.

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