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

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  • Ruediger Bachmann
  • Gabriel Ehrlich
  • Ying Fan
  • Dimitrije Ruzic

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.

Suggested Citation

  • Ruediger Bachmann & Gabriel Ehrlich & Ying Fan & Dimitrije Ruzic, 2019. "Firms and Collective Reputation: a Study of the Volkswagen Emissions Scandal," NBER Working Papers 26117, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:26117
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    References listed on IDEAS

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    1. Steven Tadelis, 1999. "What's in a Name? Reputation as a Tradeable Asset," American Economic Review, American Economic Association, vol. 89(3), pages 548-563, June.
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    Cited by:

    1. Ater, Itai & Yosef, Nir, 2018. "The Impact of Product Recalls on the Secondary Market:Evidence from Dieselgate," CEPR Discussion Papers 12899, C.E.P.R. Discussion Papers.

    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment

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