Firms and Collective Reputation: A Study of the Volkswagen Emissions Scandal

51 Pages Posted: 19 Dec 2017 Last revised: 19 Aug 2019

See all articles by Rüdiger Bachmann

Rüdiger Bachmann

University of Notre Dame

Gabriel Ehrlich

University of Michigan at Ann Arbor

Dimitrije Ruzic

University of Michigan at Ann Arbor

Date Written: December 2017

Abstract

This paper uses the 2015 Volkswagen emissions scandal as a natural experiment to provide evidence that collective reputation externalities matter for firms. We find that the Volkswagen scandal reduced the U.S. sales of the other German auto manufacturers- BMW, Mercedes-Benz, and Smart-by about 105,000 vehicles worth $5.2 billion. The decline was principally driven by an adverse reputation spillover, which was reinforced by consumer substitution away from diesel vehicles and was partially offset by substitution away from Volkswagen. These estimates come from a model of vehicle demand, the conclusions of which are also consistent with difference-in-differences estimates. We provide direct evidence on internet search behavior and consumer sentiment displayed on social media to support our interpretation that the estimates reflect a reputation spillover.

Keywords: automobiles, collective reputation, Demand estimation, difference-indifferences, Google trends, reputation externalities, Twitter sentiment, Volkswagen emissions scandal

JEL Classification: D12, D22, D90, L14, L15, L62

Suggested Citation

Bachmann, Rüdiger and Ehrlich, Gabriel and Ruzic, Dimitrije, Firms and Collective Reputation: A Study of the Volkswagen Emissions Scandal (December 2017). CEPR Discussion Paper No. DP12504. Available at SSRN: https://ssrn.com/abstract=3089760

Rüdiger Bachmann (Contact Author)

University of Notre Dame ( email )

3026 Nanovic Hall
Notre Dame, IN 46556
United States

Gabriel Ehrlich

University of Michigan at Ann Arbor ( email )

110 Tappan Hall
855 S. University Ave
Ann Arbor, MI 48109
United States

Dimitrije Ruzic

University of Michigan at Ann Arbor ( email )

500 S. State Street
Ann Arbor, MI 48109
United States

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