Bailing on the Car That Wasn't Bailed Out: Bounding Consumer Reactions to Financial Distress
58 Pages Posted: 23 Jan 2016
Date Written: November 10, 2015
This paper examines how consumers react to the financial distress of durable goods manufacturers by looking at the Swedish new car market. We employ a difference-in-differences matching methodology whereby we compare sales of carmaker Saab with those of a carefully constructed control group of substitute products. To account for possible substitution between products in the treatment and control groups, we propose and apply bounds to our difference-in-differences matching estimator. We then refine the bounds and provide conditions under which they depend only on the products’ own- and cross-price elasticities. We find that even accounting for potential substitution, there was a significant decrease in the sales of Saab following its filing for administration. These findings are robust to a number of robustness checks and alternative hypothesis
Keywords: Administration, Automobiles, Bankruptcy effects, Brand loyalty, Bounds, Consumer reaction, Consumer response, Difference-in-differences, Durable goods, Financial distress, Treatment effects
JEL Classification: C21, D12, D22, G32, G33, L62.
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