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]
Following Thomas Off a Cliff
TAGS: recalls
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I have heard (i.e. this is hearsay) that magnetic sticks-and-balls manufacturer Geomag has sued a competitor Magnetix because allegedly safety problems with Magnetix have damaged the market for magnetic-stick-and-ball toys.
My understanding of the case is:
(1) Magnetix have small magnets at each end of a plastic stick. These small magnets can fall out. (I can confirm this by personal experience.)
(2) Although a stick is unswallowable, the little fallen out magnets are not. If two magnets (or maybe a magnet and a ball) are swallowed, they can end up in adjacent bits of intestine grabbing hold of each other. This has happened and killed a toddler, leading to a product recall. (The best reference I found is http://magnetscankill.spaces.live.com/).
(3) Geomag claims their sticks can’t release small magnets like Magnetix can, so are safe, but they have lost sales by being tarred by the same brush. (I can confirm that Geomag sticks are much better quality, but I do not know about the central claim that they can’t come apart.)
I am not a lawyer. It seems to me that Geomag’s chances are slim, and it would be a major precedent if they won.
The essential theory here is sound … i.e. that for a short-term cost (of implementing safety measures) there will be a long-term gain (fewer future sales lags). But American businesses do not care about long-term gains. They worry only about the short term. Any short-term cost will be unacceptable to them, no matter the long-term payoff they might get from it.
There is an analogy to the point made in the article in the food industry. The food processing manufacturers (all domestic) are in favor of tougher regulation of food safety. This change in attitude is due to the severe hazards that have emerged due to current mfg. practices. Companies are starting to recognize that if everyone plays by the same rules and the rules are strict, every incumbent in the industry benefits or at least doesn’t lose market share.
The same rationale holds true in the other industry that the FDA regulates: the drug and medical device industries. Tough regulation raises entry barriers and keeps low cost competitors out or relegated to the lower profit segements such as standard chemically synthesized generics. Typically, the pharma and med device firms oppose loosening regulation as that would offer an entry point for new players.
The toy industry is obviously very different. A lot of small companies with minimal technical ability might not be able to meet tighter regulations or even begin to figure out what they really mean.