Consumers' Reactions to Negative Information on Product Quality: Evidence from Scanner Data

Using daily scanner data we analyze consumers' reactions to negative information with regard to product quality with reference to a fraud that involved a number of leading Italian firms in the cheese sector in 2008. We evaluate the effects of this event by using a difference-in-differences estimation strategy that compares the brands that were involved in the fraud with those that were uninvolved. It emerges that the negative news with regard to product quality induced consumers to shift their demand from involved to not involved brands. These effects persisted over time, even after the media stopped giving attention to the issue. Retailers suffered part of the costs of the bad news about product quality: the retail margin on brands that were mentioned adversely by the media decreased after the negative publicity.