Groupe d’études et de recherche en analyse des décisions

The impact of product recall on advertising decisions and firm profit while envisioning crisis or being hazard myopic

Arka Mukherjee HEC Montréal, Canada

Arka Mukherjee

Présentation sur YouTube

During a product recall, a firm at fault may incur a long-term damage in goodwill. Strategic use of advertising recovers lost goodwill and mitigates the damages made by a product recall. In this paper, using a goodwill based model under a differential game framework, we analyze the equilibrium strategies of two competing manufacturers when either one firm or both can issue a product recall at a random time, and investigate (i) the firms’ equilibrium advertising strategies (ii) analyze the impact of the recall on a firm’s profit (iii) introduce and investigate the effect of "hazard myopia" (a firm’s inability to foresee the crisis likelihood) on a firm’s advertising decisions and profit.