Warranty regulation and consumer demand evidence

Authors: Qi Sun Fang Wu

Publish Date: 2016/01/06

Volume: 49, Issue: 2, Pages: 152-171

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Abstract

Although government regulations on product warranties are common few studies have empirically examined their effects on product demand Using a natural experiment we examine the effect of a newly introduced government warranty regulation in China’s automobile market on product demand Exploiting the exogenous variation in warranty coverage caused by the regulation we apply a differenceindifferences analysis and find that the regulation increases the sales of the affected vehicles Moreover we find that 1 the demand effects of the regulation decrease as vehicle quality increases and that 2 these effects are weaker for luxury brand vehicles and stronger for nonluxury vehiclesWe would like to thank the Editor Michael A Crew and two anonymous referees whose comments substantially improve the paper We also acknowledge the financial support from the National Natural Science Foundation of China Grant 71303148 and 71402088 the Humanity and Social Science Foundation of Ministry of Education of China Grant 13YJC790126

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