The 2015 Volkswagen emissions scandal: A natural experiment to provide evidence that collective reputation externalities matter for firms; it reduced the U.S. sales of the other German auto manufacturers

Firms and Collective Reputation: a Study of the Volkswagen Emissions Scandal. Ruediger Bachmann, Gabriel Ehrlich, Ying Fan, Dimitrije Ruzic. NBER Working Paper No. 26117, July 2019. https://www.nber.org/papers/w26117

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.