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Sorting on the Used-Car Market After the Volkswagen Emission Scandal

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  • Strittmatter, Anthony

    ()

  • Lechner, Michael

    ()

Abstract

The disclosure of the VW emission manipulation scandal caused a quasi-experimental market shock in the observable quality of VW diesel vehicles. We consider a classical model for adverse selection and sorting to derive an empirically testable hypothesis about the impact of observable quality on the supply of used cars. We test the hypothesis with data collected from an online car selling platform which reflects about 50% of the German used-car market. The empirical approach is based on a conditional difference-in-differences method. We find that the supply of used VW diesel vehicles increases after the VW emission scandal. This finding is consistent with the predictions of the theoretical model. Furthermore, we find the positive supply effects increase with the probability of manipulation.

Suggested Citation

  • Strittmatter, Anthony & Lechner, Michael, 2017. "Sorting on the Used-Car Market After the Volkswagen Emission Scandal," Economics Working Paper Series 1706, University of St. Gallen, School of Economics and Political Science.
  • Handle: RePEc:usg:econwp:2017:06
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    References listed on IDEAS

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    More about this item

    Keywords

    Supply of used cars; quality of durable goods; sorting; difference-in-differences; management fraud;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • 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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