Munich Personal RePEc Archive

Bailing on the car that wasn’t bailed out: bounding consumer reactions to financial distress

Huse, Cristian and Koptyug, Nikita (2016): Bailing on the car that wasn’t bailed out: bounding consumer reactions to financial distress.

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Abstract

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 hypotheses.

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