ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Samsung suspended sales of the Galaxy Note 7 and announced an informal recall on 2 September 2016, following the discovery of a manufacturing defect in the phones’ batteries, which caused some units to generate excessive heat and combust.

Detailed explanation-2: -The competitors, LG and Apple, do not perform significant abnormal return by Galaxy Note 7´s event, thus they neither suffer nor benefit from the crisis. Regarding the aggregate effect, the market performs pessimistically toward the future profitability when authorities concerned announce “involuntary recall and ban".

Detailed explanation-3: -If a charging battery or overworked processor becomes too hot too quickly, it can ruin the chemical makeup of the phone’s components. With batteries, a chain reaction called thermal runaway can cause the battery to generate even more heat and eventually catch fire or explode.

Detailed explanation-4: -But their chemistry makes them more likely to catch fire under certain conditions because, unlike other rechargeable batteries, they contain a flammable electrolyte and are kept pressurized.