Following Thomas Off a Cliff

The product recalls of 2007 covered 276 toys and focused primarily on toys manufactured in China, including Thomas the Tank Engine. A working paper by Seth Freedman, Melissa Kearney, and Mara Lederman examines the effects of those recalls. They find, unsurprisingly, that Christmas sales were lower in 2007 for the types of toys that were recalled. But they also found that unaffected manufacturers also lost sales, suggesting that the recalls prompted widespread consumer doubts about toy safety. “One implication of this,” the authors write, “is that toy manufacturers should have incentives to invest in a set of common industry standards since each is at risk of being ‘punished’ for their rivals’ mistakes.” [%comments]

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  1. frankenduf says:

    god forbid they should actually manufacture the toys in the USA, thereby providing economic benefits for the same children/parents- i presume they could market/label the toys as such with a surcharge for the home brand- if the demand elasticity is low as it was for thomas, the sales shouldn’t drop too much

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  2. 108Warren Commission says:

    @frankenduf — the costing isn’t even close — with the exception of a few months last year when commodity prices went haywire, product sourcing in the US would require significant retail price increases. For all that consumers tell pollsters that they would prefer to buy American, their actual spending habits tell the true story.

    I am not sure that the authors of the working paper didn’t miss something basic (I am still reading it, so I might not have caught it yet). There already were standards in place, and the products that were recalled were in violation of those standards.

    Sadly, due to the poor construction of the Consumer Product Safety Improvement Act (CPSIA), manufacturers will not have the chance to develop additional standards that may help — they will be busy trying to stay ahead of the raft of unintended consequences caused by the act. Those unintended consequences are doing the most damage to the small and midsized US businesses that actually produce toys here in the US.

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  3. MeToo says:

    Regarding making things in the U.S.: think about it: it is so much cheaper to make something in China or Japan than U.S. that it is worthwhile to ship an entire SUV at a snail’s pace across the Ginormous Ocean (it is not always peaceful, but is always Ginormous, so I suggest we change the name). Something is out-of-whack. Here in the U.S., we have a range of laws regarding labor rights (those pesky laws such as providing a bathroom break) and environmental rights (how can lead paint, and its offal, be harmful? lead is part of nature!). If we in the U.S. imported goods only if they were produced under decent labor conditions, and in a relatively environmentally safe way, the Asian-made products would greatly rise in price. This would greatly close the cost gap, would improve life here in the U.S., would bring a greater degree of humanity to Asian laborers more quickly than any U.N. resolution, and would protect the environment better than any Koto Protocol. The only big diff remaining is tort: maybe the distributors should be forced to hold some level of liability for any harm fro man Asian product distributed in U.S.

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  4. Rick says:

    Yes, the cost of making things in Asia (whether it’s toys or semiconductors) is between 1% and 2% of the cost of making them in the USA. That Tomas the Tank Engine toy really does cost about a penny to make.

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  5. Mike says:

    Unfortunately, the importing toy companies had about as much incentive to guarantee safe toys as the Wall Street firms had in making appropriate risk determinations.

    There is too much money to be made in this day and age in not worrying about the details. In the meantime, many innocents and honest players get hurt.

    The response of the public to the 2007 toy problems was appropriate – steer clear of the problem – because the safety measures in place failed. Let the market punish the bad operators.

    The importers were squirming bad in the aftermath but ultimately the Consumer Products Safety Improvement Act of 2008 has come to rescue their reputations and assure a market once again willing to risk their kids with imported shlock. As an additional benefit, it has driven down domestic producers who don’t have the scale to afford the new testing.

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  6. econobiker says:

    #3, MeToo,

    Your arguement makes complete sense and that is why this is opposed by corporations.

    And here is the rub: what you suggest would be considered a “tariff” and not conductive to “free trade” which all money making corporatoins and their attending government lobbiests always want. These corporations want to have their cake and eat it also. They want to pay $1.90 to make/pack/ship a toy which they sell to the retailer for $5,51 which then is sold for $7.99 to the consumer.

    The game was/is slanted to manufacture items overseas by retailers and larger manufacturers (car companies, etc) which demand cost downs on a product through its contract period. A product that is sold to the retailer at $5,00 today should be sold for $4.50 next year and $4.00 the year after that due to increasing production efficientcies- at least that is what corporations often ply to their suppliers. See this Fast Company article about this subject:

    http://www.fastcompany.com/magazine/102/open_snapper.html

    And then these end-retail or final manufacturing companies tend not to lower the prices of goods even when the manufacturing is outsourced offshore. Or they hold the prices at a certain level even though the price should have gone up years ago.

    Essentially companies in the US are importing non-compliance with US health, safety, and environmental laws and companies overseas (say in China) are exporting their under or un-employment.

    One arguement that I make is that someday the Chinese government will come calling to the UN asking for environment repair funds due to that country’s lack of laws or non-compliance with laws that has turned major areas of their country into toxic dumps. They will ask the people of the US and other 1st world countries to pay for the sins committed in the name of the 1st world businesses.

    And these same 1st world businesses will have skated out of China and have production set up in the Sudan or Somalia by that time. The Walton Family, owners of Walmart, are not going to be held liable for toxic wastes dumped by a Chinese business which supplied electronics to the stores.

    Again, MeToo, what you say makes so much sense but corporations, which end up having the same or more legal rights as people, completely want the opposite. Please read books by David Cay Johnston formerly a NYT tax reporter, to find out about how other corporations warp the system to their ends in order to avoid taxes and avoid compliance with health, environment, and safety laws.

    Regards.
    e

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  7. econobiker says:

    Here is another link to Frontline’s series about Walmart which the interviewed person describes how this pricing pressure by Walmart et al works and eventually hurts the consumer:

    http://www.pbs.org/wgbh/pages/frontline/shows/walmart/interviews/lehman.html

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  8. ja says:

    It seems to me that allowing the industry to police itself, great in theory, will have the same results of cartels being able to trust and rely upon each other. If I remember correctly my Econ101 class taught that cartels are essentially doomed to failure due to a lack of cohesion.

    As for buying American…I would love to say I am in full support…..in reality, quality being equal, I will pay 10% or more less for an item regardless of where it is manufactured.

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