Presentation on YouTube.

Many product recalls are caused by quality-related product failures. When such recalls occur, the effects may not only be limited to the firm selling the product but also extend to competing firms in the category. This study analyzes quality and pricing strategies for competing firms facing the risk of a severe quality-related recall making the product hazardous and leading to its removal from the market. We develop a two-stage Nash game where the probability of recall depends on the firms’ chosen quality investments, and either firm can experience a recall. We consider a utility-based model where consumers' sensitivity to price and quality can change following the recall. (With Salma Karray.)