【学术视点】为时未晚：产品召回延迟与规则设计

Before It's Too Late: Product Recall Delays and Policy Design

Wenzheng Mao, Zhanyu Dong, Hsiao-Hui Lee

Manufacturing & Service Operations Management, available online in Articles in Advance, 

Recommend Reason

When a safety defect occurs, manufacturers often use product recalls to mitigate potential consequences. Although consumers expect on-time recalls for product defects, anecdotal examples suggest that firms may be passive in investigating potential defects and/or severely delay their recall decisions. Understanding how firms make their recall timing decisions has important business and social implications.

About the author

Wenzheng Mao, Advanced Institute of Business, Tongji University

Zhanyu Dong, Business School, Sun Yat-sen University 

Hsiao-Hui Lee, Department of Management Information Systems, National Chengchi University

Keywords

Product recall delays; Bass-diffusion model; product-harm crisis management

Brief introduction

We examine a firm’s investigation and recall decisions when a defect occurs and provide policy implications on how to deter long delayed recalls. Specifically, we study decisions on investigation efforts and recall timings for a profit-maximizing manufacturer by incorporating a Bass-diffusion model to capture sales patterns for products with long life cycles. Our model first shows that a firm will consider a delayed recall when the defect is noticed early, when sales suffer more negative impacts from (external) media exposure on a recall, and when the product has a relatively high margin-to-recall-cost ratio. Second, a firm that will consider a delayed recall exerts a smaller investigation effort, and it will further reduce the effort when the defect is more likely to lead to a recall. When we consider the case in which a firm’s learning effect and information updating occur in an investigation and recall process, our results remain consistent. We then test our implications using data from the automobile industry and find supporting evidence.

Our model not only helps us understand how firms make their decisions when defects occur but also offers governments and regulatory bodies new instruments (e.g., investigation efforts, penalty design, information disclosure, firm supervision) to help firms be proactive should a defect occur, thereby reducing potential casualties associated with delays in a recall progress.

Link: https://pubsonline.informs.org/doi/abs/10.1287/msom.2021.1042