Product Bans as Protectionism: The Maggi Scare

Résumé

Governments can shape market competition through targeted regulatory interventions, including firm or product bans. Such interventions not only restrict specific firms but may also generate spillover effects that alter demand and industry structure. We study the 2015 ban of Nestlé’s Maggi noodles in India, a policy shock that removed the market-dominant firm for six months before the High Court of Bombay overturned the ban as unjustified. While officially justified on health safety grounds, political motivations likely played a role. Using household purchase data and a structural model of consumer behavior, we quantify the differential impact of the ban across political preferences and distinguish demand-side spillovers from supply-side effects. We find that the ban initially reduced sales for competitors, suggesting spillovers, before competitors gained market share in the long run. Importantly, consumers in pro-government regions were more likely to substitute toward domestic brands, reinforcing the ban’s protectionist effects. Our findings highlight the broad economic consequences of regulatory protectionism that steers demand to local firms.