This article compares alternative liability rules for allocating losses from defective products when consumers underestimate these losses and producers may have some market power. If producers do not have any market power, the rule of strict liability is first-best. If market power is...

This article considers the role that reputation plays in assuring product quality in markets where consumers can only imperfectly judge product quality even after consumption. Three conclusions are derived. First, high quality firms have more customers because they have fewer dissatisfied...