Working Paper No. 1093

Bailing on the Car that Wasn't Bailed out: Bounding Consumer Reactions to Financial Distress

Published: November 10, 2015Pages: 57Keywords: Administration, Automobiles, Bankruptcy effects; Brand loyalty, Bounds; Consumer reaction; Consumer response; Difference-in-differences; Durable goods; Financial distress; Treatment effectsJEL-codes: C21; D12; D22; G32; G33; L62
Published version

Bailing on the Car that Wasn't Bailed out: Bounding Consumer Reactions to Financial Distress Cristian Huse and Nikita Koptyug


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.

Nikita Koptyug

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