The Cloud and Its Silver Lining: Negative and Positive Spillovers from Product Recalls
(A2019-3910)

AUTHORS

Verdiana Giannetti, Leeds University Business School; Raji Srinivasan, Red McCombs School of Business, University of Texas at Austin; Gaia Rubera, Bocconi University

KEYWORDS

Product Recalls; Spillover Effects; Country-of-Origin

ABSTRACT

Product recalls hurt the sales of recalled products and, sometimes, of non-recalled products because of negative spillover effects. Yet, there are few insights on how recalls may help the sales of non-recalled products in the category. We hypothesize that the sales of a non-recalled product will be hurt by brand-level (i.e., same brand) recalls, while they will benefit from country-level (i.e., same country) recalls. Further, we investigate how advertising and prices of non-recalled products interact with brand- and country-level recalls to affect their sales. We test the hypotheses using sales data on 124 cars in the U.S. market in 2006-2015. Results indicate that, while brand-level recalls hurt the sales of non-recalled products, country-level recalls benefit them. Further, higher advertising and prices of non-recalled products attenuate the negative effect of brand-level recalls, while lower prices of non-recalled products strengthen the positive effect of country-level recalls.