Working Paper Series,
Research Institute of Industrial Economics

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 hypothesis.

Keywords: Administration; Automobiles; Bankruptcy effects; Brand loyalty; Bounds; Consumer reaction; Consumer response; Difference-in-differences; Durable goods; Financial distress; Treatment effects

JEL-codes: C21; D12; D22; G32; G33; L62

Language: English

57 pages, November 13, 2015

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