Multimarket Firms and Product Liability : Uniform v.s. Variable Rules

When a multimarket firm's product causes harm to consumers, should the firm bear uniform or variable liability across markets? We analyze a two-market model, in which under the variable rule the firm's liability rises above the standard level in market 1 but falls below it in market 2, while under the uniform rule the standard liability is enforced in both markets. Allowing variation in product liability across markets has broad implications for the firm's incentive to invest in product safety, total output, and output allocation across markets, as well as for the optimal choice of the standard liability in the first place. We show that welfare is higher under uniform liability if demand elasticity is weakly higher and demand curvature is weakly lower in market 2 than in market 1, but welfare can be higher under variable liability otherwise