Market Structure, Liability, and Product Safety

In this chapter we consider how models of imperfect competition, developed by scholars working in industrial organization, provide insight into an important area of law: products liability (that is, liability for harms and losses associated with goods and services sold via markets). Remarkably, traditional law and economics (L&E) analyses of products liability generally find no role for the influence of market structure or strategic interaction on liability policy. After briefly summarizing the traditional analysis, we consider two simple (but plausible) model modifications that yield a substantial impact of market structure on the choice of safety and (potentially) on the choice of liability regime. We also describe a selection of particularly relevant other papers that involve models of imperfect competition in which firms choose safety and output (or price), and in which consumers may be harmed by the product