Saturday, March 13, 2010

Toyota Recall: A Market Success

Just want to let you know about a well written Op-Ed in the San Jose Mercury News detailing the superior ability of the free market to control for quality.


In cases like Toyota, free market works better than government by Emily Schaefer

[E]ven massive product recalls should be seen not as examples of market failure, but as signs that markets work as they should...

A functioning market is one in which companies produce products that meet consumer demands. When companies make products that are unsafe or ineffective, they risk losing customers and money...

While no company is perfect, correcting errors when they occur is a necessary part of doing business — and necessary to a properly functioning market...

Other private organizations and businesses {Kelley's Blue Book, consumer Reports] also have an incentive to provide reliable, accurate and timely information on product quality and safety...

Private organizations such as Consumers Union must maintain a reputation for accuracy and integrity. If they fail to do so, they lose support, credibility and revenue. Government agencies must meet no such market test. In fact, it is often failure that gets rewarded with larger budgets, additional employees, and more investigative or regulatory authority. Their incentive, therefore, is to exaggerate problems...

Government's incentives — beyond doing the right thing, which most government employees want to do — are often at odds with its mission.



Many proponents of government regulation can not visualize how quality control can be achieved in the free market. Schaefer illustrates how not only it is possible in the free market, it is superior. Read the rest.

6 comments:

Anonymous said...

I am surprised that you did not raise the possibility that the government has its hand in magnifying the problem, advertizing it and allerting the public to it. Now that the government has ownership in the car industry, they has an incentive if their competition fails. My impression is that the problem is not as severe as it seems and that Toyota's cars are still by far the safest. The government, when allowed, has a stronger influence and unfortunately we don't have a free market anymore.

Beth said...

Excellent points. Thanks for commenting.

Anonymous said...

Toyota and others knew they were having issues and attempted to hide it. All Car Companies should have came forward with a full disclosures of what car were dangerous. Instead of waiting for a huge media blitz and tons of public pressure. I never seen so many car companies GM - NISSAN - TOYOTA - HYUNDAI having recalls all at the same time. I had no idea my car was affected until I looked on http://www.carpedalrecall.com and found I had a bad Anti Lock control unit on my 2008 Pontiac G8 , my co workers Ford Truck had a recall also. So be careful

Mo said...

This affair reminds me very much of the "unintended acceleration" allegations made against Audi in the USA many years ago. In the end the entire affair was demonstrated to be a combination of driver error (to stop one is supposed to press the brake pedal, not the accelerator pedal, to reverse the car one is supposed to select "reverse" and not "drive") and media hysteria. It cost VAG millions of dollars in investigations, frivolous law suits and in lost sales. The main difference between what VAG was dealing with and what Toyota is facing is that these days most of the USA car industry is a branch of government.

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